[ 2016-11-11 ]

Bankers split on local dollar bond issuance
The Chief Investment Strategist of Standard
Chartered Bank Group, Steve Brice, has backed
government’s recent decision to turn to the
domestic capital market to raise capital by
issuing its debut dollar-denominated bond
considering it as a necessary move that will not
harm the economy.

The position of the Standard Chartered boss
contrast with that of other banking practitioners
in the country who have questioned government’s
entry to the capital market to raise dollar funds
describing it as a "direct competition for limited
local dollar bills."

Speaking to journalists at the bank’s
headquarters in Accra, Mr. Brice argued that the
local dollar bond is a smart move from the
managers of the economy to re-profile the
country’s huge external debt.

"Ghana has significant external debt and it is
trying to re-profile that debt to make sure it is
sustainable. So that is what they are doing with
the dollar bond by trying to extend the maturities
significantly. They want to make sure it does not
have big humps in maturities because that is where
they get liquidity stress for the country and that
can also create some challenges.

"So from that perspective, it [the local dollar
bond] makes total sense. Clearly we want to get to
a point in Ghana where the fiscal position is
strong and we do not have to rely much on external
debt. We have seen significant progress there
already but we still need to see more progress,"
Mr. Brice said.

When asked by the B&FT his opinion on whether the
local dollar bond will impact negatively on the
economy as some players in the banking industry
and some financial analyst predict, Mr. Brice
opined that the nature of the country’s economy
makes it unlikely for it to happen.

"If you issue dollar bonds and that money comes
from on-shore then you are draining liquidity at
the local system and that could bring pressure on
the local interest rate structure.

"We have seen that with a lot of oil exporters
recently, but I know Ghana is a net oil importer.
So I don’t think it will negatively impact on
the economy. To be honest with you, I think it is
a good thing and you [the country] should take
advantage," Mr. Brice maintained.

Even though the Finance Ministry expected the
debut USD-denominated bond to raise around
US$50million, the bond raised close to
US$95million and attracted a total of 26 bids.

Irrespective of this feat, some financial analyst
and bankers expressed their misgivings about the
local dollar bond.

"I think this shift [raising dollars locally] is
not healthy for the development of the local
currency debt market and will strongly influence
currency substitution- a situation where a foreign
currency is mostly used in transaction in place of
a domestic currency," Sampson Akligoh, Managing
Director of InvestCorp-an investment bank, told
the B&FT.

"I disagree with Seth Terkper [Finance Minister]
on this action. I think it is a wrong move. This
is government competing directly with the banks
for dollars," Frank Adu Jnr., Managing Director of
CAL Bank, also told the B&FT in an interview.

However, the Finance Minister, Seth Terkper, in a
press briefing, assuaged any fears coming from
various stakeholder, particularly with the banks,
saying, government’s policy on the issue is in
favour of the banks.

"Government policy has always benefited the banks.
It is the reverse of what the banks are talking
about now. What they are saying here is that we
are mopping dollars from their deposits and it
will lead to competition by government. But you
saw the reverse where government action also
benefited the banks when about 500 million dollars
was used to pay domestic debt," he said.

"If you look at that amount that we are raising
which is 90 million dollars compared to the 250
million dollars in the 2014 bonds to do
refinancing, we have used in excess of 500 million
dollars to do domestic refinancing.

"You will see that the balance is more in favour
of banks and the domestic market in easing
pressure off the domestic market instead of
putting pressure on the domestic market,"
Mr.Terkper further stated.

Source - Business & Financial Times

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