Ghana's small security exchanges show growth

After rising 71.8% in 2013, Ghana’s stocks had a modest 2014, with the benchmark index up just 5.4% (and most of that rise seen in the beginning of the year following on the 2013 rally). To a great extent, the muted performance reflected external circumstances. As with the banking sector, equities were in competition with government securities, which offer high, risk-free returns. The share market also suffered from exogenous forces, namely the drop in commodity prices and the threat of rising interest rates in the US, which have made resource-rich emerging markets less interesting to international investors. Currency depreciation against the US dollar was an issue as well. “The decline of the cedi against the dollar has had an impact on import prices for key commodities such as soda ash. This translates to more expensive prices for the local market,” Peter Mensah, managing director at Wella Investment, told OBG.

Nevertheless, Ghana’s markets are developing in spite of the limited trading volumes, with momentum building and a solid foundation being set for future growth. Companies are continuing to list on the Ghana Alternative Exchange (GAX), the depository is installing a new working platform, an electronic bond market is being created, and a new and far-reaching Securities Law is in the works that could result in a wider range of products on the market, better and more effective regulation, and more flexibility for investment funds.


The country’s bond market has remained strong despite broader macroeconomic trends and a double downgrading by Moody’s in the span of a year. In late 2014 Ghana was able to sell $1bn of debt on the international markets in an offering that was $2bn oversubscribed. While the yield was 8.25%, higher than the average for African bonds, and the transaction followed a request for IMF assistance, the sale showed that international investors still had an appetite for Ghanaian paper and faith in the country’s debt securities. The government is planning another bond in 2015, with IMF approval. “As the government looks for ways to develop cities, municipal bonds should be created to increase capacity for development,” Clifford Mpare, chairman and CEO of Frontline Capital Advisors, told OBG. Although the state postponed the issue of a $1bn eurobond it had originally hoped to issue in June, as of late September the government intended to raise the value of its issue to $1.5bn with a new date of October 2015.

On the domestic side, interest rates continued to rise as the government maintained its heavy borrowing to cover its deficit spending, but bonds with longer maturity were being auctioned in early 2015 as the government sought to lower its cost of funding and move away from short-dated bonds. A five-year issue in March 2015 sold well and was oversubscribed. Later in the year, however, market developments prompted the Ministry of Finance to postpone a five-year Treasury bond that had initially been planned for August. No revised date for the issuance was given.

Small Market

The Ghana Stock Exchange (GSE) was founded in 1989, and trading commenced the following year. The market is now a T+3 (down from T+14) exchange and it allows for dematerialisation, utilises straight-through processing on a delivery versus payment basis and is automated under the continuous auction trading system. The settlement of transactions remains manual, although it is centralised, according to the Central Securities Depository (CSD). At the end of 2014, the country had 21 brokerage firms, 13 custodians, and 38 listed and three unlisted equities, according to the CSD.

Shares were 85.35% dematerialised at the end of 2014, with Ecobank the highest at 98.18%. As of the first quarter of 2015, the country had a total of 83,537 brokerage accounts. NTHC Securities had the most (21,269), followed by Databank Brokerage (10,627). Foreign investors held GHS2.6bn ($722m) of stocks, or about 29.7% of the total.

Equity trading was down considerably in 2014, with GHS346m ($96m) worth of shares changing hands compared to GHS456m ($126.5m) a year earlier. Financial firms accounted for 67.9% of the turnover, with Ghana Commercial Bank having the most volume – GHS59m ($16.4m). The market is seen as solid, well managed and efficient. The depository also holds debt securities issued by the Government of Ghana, Bank of Ghana, Ghana Cocoa Board (COCOBOD), Barclays Bank of Ghana and Izwe Loans. The biggest issuer of debt in the country is the Government of Ghana, with GHS37.2bn ($10.3bn) outstanding as of the end of 2014. Bank of Ghana was the second-largest issuer, with GHS7.8bn ($2.2bn) followed by COCOBOD, with GHS2.1bn ($583m). In 2014 the longest-dated paper was the three-year Government of Ghana debt. The largest portion of Government of Ghana debt is 91-day paper (28.26%).

The main constraint on Ghana’s capital markets is the lack of trading – a common problem in Africa’s emerging and frontier markets, where the pool of investors is limited and most follow a buy-and-hold approach. “Apart from the financial stocks, there is almost no liquidity,” Emmanuel Ashong-Katai, research and market development head at the Securities and Exchange Commission (SEC), told OBG. An expansion of some financial instruments such as real estate investment trusts (REITs), the use of which is currently limited in Ghana, has been suggested as a further means to increase market activity. “REITs could be a hot item for the GSE as retail property expands, and given the still strong demand for low- to mid- income housing,” Mpare told OBG.


A number of steps have been taken in recent years to improve market infrastructure. In early 2014 the CSD, which had been founded by the central bank in 2004, merged with the Securities Depository Company (SDC), which was formed in 2008. The SDC handled stocks while the CSD handled securities from the government, the central bank and COCOBOD. The merger gave the central bank an 82% holding of the new CSD, while the rest was held by the GSE. Since then the GSE has increased its shareholding to 30%. Business at the depository has been good. Its operating income hit GHS11.2m ($3.1m) in 2014, up from GHS5.4m ($1.5m) in 2013. Its assets rose 41.43% on the year. The number of investor accounts increased to 647,212 in 2014, from 556,837 a year earlier, with the CSD attributing this in part to growing interest in government debt securities.

The CSD is continuing to upgrade its system. In early 2015 it signed an agreement with Millennium Information Technologies of Sri Lanka, a London Stock Exchange company. Under the deal, the CSD will receive a highly advanced platform that will greatly enhance its capabilities. The system will connect directly to the GSE’s trading system and the Bank of Ghana’s real-time gross settlement system for the straight-through processing of transactions. In addition, it will connect to all the major market players – brokers, custodians and registrars – and keep all securities for an investor in a single account. This will allow for the development of new services and products, including derivatives and securities borrowing and lending.


Significant advances are also being pursued on the debt side. The Ghana Fixed Income Market (GFIM), a platform for the secondary trading of debt and related instruments, commenced operations on August 17, 2015. It was formed by the Bank of Ghana, the GSE, the CSD, the Ghana Association of Bankers, the Association of Bank Dealers, and the licensed dealing members of the GSE. A wide range of products will be traded on the GFIM, including government bills, notes and bonds, Bank of Ghana money market instruments, quasi-government institution securities, corporate notes and bonds, municipal bonds and repos. The actual trading will be done on a system provided by Bloomberg, and settlement will be handled by the CSD. Historically trading of fixed income in Ghana has been done manually, and very often by telephone.

In late 2014 the government also decided to change the way it issues bonds, using banks to assist in the offerings, and said that these banks would employ a book-building process. The country has had trouble selling bonds dated longer than three years. In both April and May 2015 the three-year bonds issued by the government were undersubscribed. This channel to market is seen as not only improving the distribution of bonds, but also helping the capital markets participants more generally, as they will earn fees as intermediaries.

Going Public

As with many of Africa’s bourses, attracting new listings is a challenge in Ghana due to a variety of factors, ranging from the small pool of potential blue chip firms, to limited awareness and a reluctance of business owners to cede control. The last initial public offering (IPO) on the main board was Mega Africa Capital (MAC), which listed in April 2014. The company was a closely held private investment firm owned by Oak Partners, an Accra-based private investment company. It invests in real estate and equities and has holdings in Ghana, Malawi and Tanzania. In the offering, MAC sold 1.3m shares at GHS3.00 ($0.83) each.

New main board listings are being planned and discussed. Africa Atlantic Holdings, a company that grows corn and is testing other crops in the Afram Plains region of Ghana, is one possible candidate. And in June 2015 financial services provider afb said that it will soon list corporate bonds on the GSE after receiving permission to do so from the central bank and the SEC. afb is one of the country’s largest payroll lenders, with 23 outlets and 80,000 customers. The proceeds of the issue will be used for expansion and to strengthen the company’s balance sheet. afb is part of the afb group, a financial services firm that has operations throughout Africa. In March 2015 mining firm Gold Fields Ghana, part of the multinational precious metals producer headquartered in South Africa, said it was considering a listing on the GSE. The government has been pushing foreign companies to have shares traded locally, and a number of them are making arrangements to meet this requirement. MTN, the largest wireless carrier in Africa, also based in South Africa, said in early 2015 that it was considering a listing.


While the GSE’s main board has gone through a lull, the alternative board is showing promising signs of life. The GAX was founded in 2013 as a secondary board designed to allow smaller companies to list, and it is part of a broader trend on the continent, with Nigeria, Egypt and Morocco all establishing similar markets in recent years. The requirement thresholds are lower than on the main board. Companies need only have GHS250,000 ($69,375) in capital and 20 shareholders. That compares with GHS1m ($277,500) in capital and 100 shareholders for the main board. The GAX has no profit requirement; candidates must merely provide a business plan that demonstrates a pathway to profits by the third year. The GAX also has no listing fees and an annual fee of GHS2000 ($555). A GSE Listing Support Fund is available for these companies. The fund, created by the GSE, the Ministry of Finance and the African Development Bank, assists issuers wishing to list and offers support for advisory, legal, financial, media and other related services. The funding is to be paid back, interest free, after listing.

The first listing on the GAX was a debt instrument: GHS38.6m ($10.7m) of corporate bonds by Izwe Loans in November 2014. The tenor of the bonds is one to three years. Izwe Loans is a pan-African group registered in South Africa and operating in South Africa, Zambia, Ghana and Kenya.

The first attempt at a GAX equity listing was put on hold. In March 2015 Intravenous Infusions suspended its IPO on the market because the underwriter could not guarantee that a minimum amount of stock would be sold. Firms handling IPOs must be able to take 25% of the deal, and the brokerage leading the transaction – First Atlantic – was unable to do that. Intravenous Infusions, which manufactures fluids that are used in IVs, was incorporated in 1969 and has been in business since 1974. The plan was to sell 153.3m shares at GHS0.12 ($0.03) per share.

However, after that attempt, a number of listings quickly followed and succeeded. In May 2015 Samba Foods, a food processing company that markets local ready-to-eat products, started trading on the GAX following an IPO. The company offered 3.4m ordinary shares at GHS0.72 ($0.20) per share for a total fundraising of GHS2.5m ($693,750). After the sale, the total public float was 58.16% of the enlarged capital. It intends to use the funds raised to buy new machinery for its groundnut processing plant, invest in other infrastructure and pay down debt.

The company is wholly owned by Ghanaian citizens and was founded in 1993. HORDS, a major Ghanaian agro-processing company, also officially listed and began trading its shares on the GAX in August 2015. Mensah expects this trend to continue, “Demand for key industrial inputs has increased across all segments, including food and beverage companies, mining and pharmaceutical companies,” he told OBG.


 One major market event scheduled for this past year – which was eventually put on hold – was the listing of the Agricultural Development Bank (ADB). The bank is currently 52% government owned and 48% owned by the Bank of Ghana. The privatisation had been discussed under the previous administration, but the process stalled ahead of the 2012 elections. The bank finally received government approval for the offering in April 2014 and SEC approval in March 2015. However, in June 2015 it was decided that the IPO should be suspended, following a request by the government. This came after a lawsuit was lodged by a member of parliament, which questioned whether under the 1992 constitution ADB is required to receive parliamentary approval before the privatisation. An employee union also raised objections over some of the management plans in the lead-up to the IPO. If the listing eventually materialises, it could have significant positive ramifications for the market. Under the previous plan, ADB would have raised GHS200m ($55.5m) to be used to increase capital and finance expansion.

The bank noted it was listing on the domestic exchange so it could remain an indigenous institution, raising funds without having to sell large stakes to international investors.

Securities Law

By far the most important change on the horizon is the passing of a new securities law. The update has been in the works since at least 2012 and is being pushed so that the country’s markets may be better aligned with international norms and better in line with the International Organisation of Securities Commissions’ principles. The current law, the Securities Industry Law, was passed in 1993 and was revisited only once more, with the passing of the Securities Industry Amendment Act, 2000, Act 590.


While the markets in Ghana are facing significant macroeconomic headwinds, regulators and the government are continuing to make progress and lay the groundwork for recovery and expansion. The GAX is working, and market infrastructure is improving. In addition, IPOs are lining up for the main board, and a new securities law will soon be passed. These efforts will make a difference over the medium and the long term, with the GSE becoming more attractive to investors and robust enough to handle high volumes once they come. The challenge is weathering near-term instability, as the government works to fix the economy and as interest rates rise in the West.

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The Report: Ghana 2016

Capital Markets chapter from The Report: Ghana 2016

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