The fourth Ghana Eurobond was successfully issued at 10.75%. A spokesperson said “The bond is a soft amortizing one with tenure of 15 years amortising in years 2028, 2029 and 2030. The principal will be repaid in three instalments of US$333 million in years 2028 and 2029, and US$334 million in 2030. The 15 year tenure means that Ghana has become the first sub-Saharan African country outside South Africa to successfully issue a 15-year bond.” It was further reported the bond was highly oversubscribed by 100%. A couple of weeks before Ghana’s Eurobond, Zambia issued its bond at 9.38%. Government has blamed the higher yield on the bond on turbulent global conditions, whilst other analysts believe the higher yield is a reflection of the weak political economic fundamentals of the economy.

Required

(a) What is the annual explicit cost of the Eurobond in nominal terms (annual dollar cost)? (6 Marks)

(b) What other implicit costs can you deduce from the Eurobond as well as the effective maturity of the bond? (6 Marks)

(c) To what extent do global and weak country-specific political and economic fundamentals explain the ‘higher’ yield on the recent (2021) Eurobonds?

(d) What are Eurobonds, Green Bonds, Zero Coupon Bonds and Century Bonds?

(e) 6 days ago, we read “Ghana becomes the first Sub Saharan African Sovereign to issue a Eurobond in USD since the onset of the Covid-19 pandemic raising USD 3 billion where proceeds will support the budget deficit by funding growth-oriented expenditures; and conduct liability management on both external and domestic bonds”. i) As a development finance professional, discuss the implications of this form of financing compared to borrowing from the domestic financial markets particularly in the face of rising interest payments. ii) Discuss the implications of Ghana’s rising public debt and propose four practical solutions to the Ministry of Finance on how to bring public debt to sustainable level.

Answer rating: 100% (QA)

a The annual explicit cost of the Eurobond in nominal terms is 333 million b The implicit costs of t... View the full answer