Despite Few Economic Reforms, Ghana's Bonds Are Suddenly in Demand

By Julie Wernau and Christopher Whittall 

Ghana hasn't done that much over the past year to curb its double-digit inflation, rein in its debt or steady its shaky economy.

What has changed is that investor demand for the country's bonds is suddenly booming as money managers scour the globe for yield during a period of rock-bottom interest rates.

Ghana on Thursday sold $750 million in six-year bonds at 9.25% yield. Interest in the debt was so strong that the government received more than $4.5 billion in orders from investors, according to people familiar with the sale. That demand enabled Ghana to reduce the yield it offered from the 9.5% to 10% early price talk.

"There's desperation to buy anything with a coupon," said Paul McNamara, a portfolio manager at GAM Holding. Ghana's high-yield credit rating is on review for downgrade by two credit-rating firms, and the country has a big current-account deficit, he added.

"This is not a poster child for emerging-market reform by any means," Mr. McNamara said. "I'd take this as a sign that people aren't looking beyond the coupon."

The strong appetite for Ghana's debt marks a sharp reversal from less than a year ago, when the country struggled to place a $1 billion bond offering.

In October, the West African country of 27 million had to reduce its debt offering by one-third and increase interest payments to 10.75%, up from its original target of 8.5% to 9%. The government also needed to secure a World Bank guarantee for $400 million of the 15-year debt to win over investors.

Ghana's bond sale is the latest example of emerging-market countries -- some of which have struggled to sell debt in the recent past -- cashing in at a time when much of the developed world offers low or negative interest rates.

"If you think about the five-year space and where rates are in general in the credit world, 9.25% is pretty appealing," said Marco Santamaria, a New York-based money manager at AllianceBernstein LP, who helps manage about $22 billion in emerging market debt.

Riskier bonds from countries like Argentina and Zambia, which a year ago also had trouble selling debt, have outperformed most other emerging markets amid global demand for their high-yield bonds.

In Ghana, analysts say, the government's effort to boost the economy and attract capital has had mixed results. The International Monetary Fund predicted in April that the country's budget deficit would drop to 3.9% of gross domestic product in 2016, compared with 5.1% in 2015. Meanwhile, inflation dipped from 18.4% year over year in July to 16.7% in August.

But Ghana also defied the IMF, which had asked the country to bar its central bank from lending money directly to the government to cover its deficit. Instead, the government passed a law to cap spending, stalling the approval of its most recent review with the IMF.

"Our view tends to be that things in Ghana are getting better. But I wouldn't say things are night-and-day different than last year," said John Ashbourne, economist at Capital Economics Ltd in London.

Marco Ruijer, an emerging-market debt portfolio manager at NN Investment Partners, decided to take a pass on the bonds after the coupon dropped below original guidance.

"Last time they needed the World Bank guarantee and it was still a 10.75% coupon," he said. "Times are changing."

Write to Julie Wernau at [e-mail] and Christopher Whittall at [e-mail]

(END) Dow Jones Newswires

September 08, 2016 17:32 ET (21:32 GMT)

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