Ghana seeks private bank loan, and Nigeria mulls Eurobond as cash dries up and budget gap swells

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Ghana is seeking a syndicated loan to reduce budget deficit, while tapping the offshore bond market this year is crucial for Nigeria

GHANA is considering raising money through private bank loans, abandoning plans to sell as much as $1 billion of Eurobonds on concern its inability to raise targeted budget revenue may spark an investor selloff.

With-lower-than-expected oil prices, the government can’t raise all the revenue needed to meet the budget gap, the Ministry of Finance said in a statement on its website. That may worry investors in Ghana’s Eurobonds and prompt them to demand higher yields.

Ghana is trying to reduce its budget deficit to 5.3% of gross domestic product this year from 6.7% last year, based on crude prices averaging $53.05 a barrel. The finance ministry has proposed cutting the benchmark oil price in the budget to as low as $35 a barrel, it said in the statement.

The cocoa and gold exporter agreed to an almost $1 billion International Monetary Fund program in April 2015 as cocoa output declined and prices of commodities, including gold fell. The program was intended to help rein in the budget deficit, which topped 10% of GDP for a third year in 2014, and halt declines in the currency. The cedi has strengthened 0.1% against the dollar this year.

Refinance bonds

The proceeds from syndicated loans will also be used to refinance dollar bonds maturing in October 2017, with a $531 million balance outstanding, the ministry said. Private loans would be sought in combination with multilateral and bilateral facilities, according to the government. 

A balance of $257 million available from last year’s Eurobond proceeds and past oil revenue savings currently amounting to $105 million will also be used to refinance the debt maturing in 2017.Ghana may still sell a Eurobond if oil prices rise, the Finance Ministry said.

Meanwhile, the odds are stacked against Nigeria as it looks to raise debt on the international markets for the first time in almost three years.

Finance Minister Kemi Adeosun is leading a team of officials that will meet bond investors at London’s Corinthia Hotel on Tuesday at a time when Africa’s biggest economy is on the verge of a recession, oil production has fallen to about a three-decade low, and the budget deficit has swelled to a record. 

Yields on Nigeria’s existing dollar debt are almost twice as high as those for Kazakhstan and Colombia, two other developing-nation oil producers.

While they’re interested in plans to revive growth, investors said they will also demand to know when and how the central bank will end capital controls and a currency peg that has starved the country of dollars and slowed foreign investment to a trickle. Tapping the offshore bond market this year is crucial for Nigeria to fund a budget of 6.1 trillion naira ($31 billion) meant to stimulate the economy, according to Rand Merchant Bank.

Immense scrutiny

“They will be under immense scrutiny,” Nema Ramkhelawan-Bhana, an analyst at RMB, FirstRand Ltd.’s investment-banking unit, said from Johannesburg on June 2. The Eurobond market, which Nigeria may tap for as much as $1 billion, is “an avenue of financing they’re in desperate need of. It’s going to be a tough week for the finance ministry,” she said.

Nigeria has sold dollar bonds twice, the last time in mid-July 2013, when it raised $1 billion of five- and 10-year debt.

Bond investors blame Nigeria’s rigid foreign-exchange regime for draining reserves, which have fallen to a more than 10-year low, and hindering the economy, according to Bank of America Merrill Lynch. The second-biggest U.S. bank by assets says Nigerian Eurobonds would rally more if the government allowed the naira to weaken.

Central bank Governor Godwin Emefiele has fixed it at 197-199 per dollar since March 2015, even as other oil exporters from Angola to Kazakhstan have let their currencies drop. Forward contracts suggest it will fall 43% to 285.5 in three months and to 328 in a year. The black-market rate has plummeted to around 355 as the central bank runs out of the foreign-currency that companies need to import raw materials and equipment. (Bloomberg)

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