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Energy bond struggled due to low interest rate – Finance Ministry

Nov. 9, 2017, 3:44 p.m.

The Finance Ministry has clarified that government’s failure to achieve its targeted GHC10 billion lump sum after issuing the Energy Sector bond, was largely because investors considered the interest rate unfavourable.

A Deputy Minister of Finance, Kwaku Kwarteng, made this known today [Thursday] on the Citi Breakfast Show.

He noted that investors were not happy with the 19% promised them, and had asked for more, but government was not willing to offer anything beyond 20%.

Government issued a ten-year and seven-year bond with the aim of getting GHC6 billion to offset the legacy debts of the energy sector, which is about GHC10 billion.

But in all, a total of GHC4.69 billion was realized even after a seven-day extension period.

The 7-year component in the first-quarter of 2017, raked in 2.4 billion cedis as targeted, at an interest rate of 19 percent.

However, the 10-year bond failed to hit the 3.6 billion cedis mark.

There are reports that not even the explanation and appeal by government changed the minds of investors who seemingly wanted more interest on their investments.

The Minority at a press conference on Wednesday accused the government of causing financial loss to the state with the energy sector bond.

According to the minority, the below GHC6 billion yield was a solid basis for the Finance Minister, Ken Ofori-Atta, to be hauled before the House to explain why investment advice from places such as the IMF among others were ignored.
They also accused government of breaching the constitution because it did not seek the approval of Parliament before issuing the bond.

But Kwaku Kwarteng, who is also the Member of Parliament for Obuasi West, whilst speaking to the issue on the Citi Breakfast Show on Thursday, said government pegged the interest rate for the bond at 19% because “we don’t want to overburden the economy with interest payments.”

“We gave instructions to this company [ESLA Plc] that as a matter of government policy, we do not want you to take bond beyond 20%, and so that is how they went to the market. Now on the 7 year bond, the minority is right; some of the investors invested immediately, some of them said that they have been used to buying Ghana bond at 25% or 26%, which was under the previous administration, but why is it that now you want to sell this bond and you are giving us this low, so we are not enthusiastic about it. That is the whole crux; it’s about the price on the bond.”

The Deputy Minister said they tried to convince the investors to patronize the bond telling them that “the macroeconomic fundamentals are better, we think that the things investors should consider when they are lending to a country are far better than 2015, when they were buying government bond at 25 or 26 percent, so they should patronize our bond at the price we are giving and that we don’t want to move.”

“After several engagements – people want to call it begging – we sat down and explained to people, why below 20 is a fair price to give them. Thankfully, we now got all that we want for the seven-year bond at the rate of 19%. Now the 10-year bond we are facing a similar situation. The investors are telling us that if we can even come up to 21%, we will get what we want. We believe that if they do a proper analysis of the economy in the end, they will see at a maximum the 19.5% that we are presenting now as a fair price,” he added.

We’ve not breached constitution over energy bond

On claims that government breached the constitution for not seeking Parliamentary approval, Kwaku Kwarteng said they did no wrong.

““When you go to the bond market, you are not in a position to sit down and agree on a set of terms, take it Parliament, come back and you get those terms from the different investors. It’s not possible. We think that this press conference was completely unnecessary, bad taste and misinformed…In the eight of years of Rawlings, Mills/Mahama, they’ve never brought any bond issue to Parliament so why are they now asking why we did not take it to Parliament.?

The NPP government is clear on what we are doing, we are not going to be pressured to give the kind of unhelpful and imprudent interest rates that we gave to investors. We will continue to engage and we are sure that at the end we are going to get the money that we want,” he added.