Long-term funding: The government takes action to increase activity on the bond market

While government bonds are a popular form of investment among both retail and institutional investors, there are currently no corporate bonds listed on the Ghana Stock Exchange (GSE). However, the government is undertaking an initiative to encourage more issues and listings, and developments such as pension reform are set to spur increased activity.

A POPULAR CHOICE: “Government securities are a popular form of retail investment in Ghana, partly because securities are easily accessible. Auctions of government securities occur almost every week and there are lots of retail customers as individuals can invest as little as GHS20 ($11.90),” said Stephen K Tetteh, the CEO of the Central Securities Depository (CSD). Of GHS10.35bn ($6.1bn) of outstanding government securities as of December 2011, holders other than the banking system, insurance firms and the SSNIT accounted for GHS4.47bn ($2.7bn), or 40.5%. “Furthermore, returns in the equity market have not been smooth, so retail investors are often wary of it,” added Tetteh.

The authorities are looking at lengthening government bond maturity dates, which currently do not exceed five years, to up to 10 years, though there is doubt as to whether this will happen in 2012, given issues such as the looming elections and macroeconomic instability in the form of the recent depreciation of the cedi (see Economy chapter).

CORPORATE ISSUANCES: While there is activity in the government bond market, the local corporate bond market is moribund. Indeed, at the time of writing, there were no corporate bonds listed on the GSE, with a bond issued by HFC Bank having matured in March 2012. Bond issues face a number of hurdles. For example, raising funds on the bond market can be costly and time-consuming compared to the alternatives. “The listing process can be expensive, and banks are very liquid and will generally step in before companies get through the bond-issuing process to offer them a loan, which is usually less hassle. You therefore really need to want to issue a bond in order to do it,” Kojo Addo-Kufuor, the chief operating officer of Ghana Home Loans, said. “For example, MTN could have been a great bond issue but the banks stepped in first.” Equity listings have also proved more attractive as a means of raising funds. “Five years ago there were many corporate bonds on the GSE, such as Standard Chartered,” said Yaw Adu-Koranteng, a research analyst at Gold Coast Securities, “but companies now prefer to list rather than issue bonds as they see equity as a cheaper source of finance.”

REMOVING OBSTACLES: However, the authorities are taking steps to try to boost activity on the market. The government in early 2012 launched a panel aimed at encouraging the development of the segment, the national Bond Market Committee. The panel is working to identify hindrances to the development of a corporate bond market and will recommend reforms in order to remove these. According to an advisor to the panel quoted by Reuters, the committee will encourage both state-owned enterprises and private companies to issue bonds. The CSD’s Tetteh also believes the government’s plans to lengthen its bond terms could help stimulate the corporate market. “Corporate bonds need a long-term yield curve to act as a reference price; without that, it makes it difficult for them to determine their own price, so corporates currently prefer to go for bank loans. Extending the yield curve would create a benchmark and could create a good environment for corporates to issue more debt,” he said. The pension reforms under way (see overview) are also set to boost the prospects for the corporate bond market.

Initiatives by multilateral partners could also soon see more non-government bonds come onto the market. In May 2012 the International Finance Corporation, the private sector arm of the World Bank, announced plans to launch more than $1bn worth of local currency debt in six African markets including Ghana under its Pan-African Debt Medium-Term Note Programme. The money raised will be used to provide long-term local currency financing to local businesses in order to reduce dependency on riskier foreign currency financing.