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Energy bond managers justify yield on E.S.L.A paper, declining investor interest

Oct 30
09:10 2017

Managers of the country’s historic energy sector bond have justified the interest expected to be paid on the E.S.L.A PLC paper.

This follows reports that they could not get the targeted amount because of the price offered to investors.

But in a response to set of questions sent by some journalists to the managers, they maintain that “price is an important consideration for Ministry of finance and they have demonstrated that they have a prudent and responsible approach to pricing”.

It added that “it is important not to overpay, the structure is robust and the yield is expected to contract over time”.

Government earlier this month last month settled on Standard Charted Bank and Fidelity Bank as arrangers or managers for the E.S.L.A PLC bond.

It was hoping to raise some GH6 billion by issuing two separate bonds, It got more than the GH2.4 billion it targeted for 7-year bond but could not get the GH3.6 billion targeted in the 10-year bond.

This forced them to extend the time for closing book to next week Friday.

This is based on what they are describing as reserve inquiry from investors. 

Below is a set of questions sent by some journalists and response by managers.

Question: What does the result of the bookbuild mean?

Orders received for the 7yr ESLA Bond was GHS 2,529m and amount issued was GHS2,408m at a coupon of 19%. The 7yr ESLA Bond bookbuild has been closed and will settle on November 1.

The current book size for the 10yr ESLA Bond is approx GHS 902m and following reverse inquiry from investors the closing date for this bond has been extended to Friday 3rd November at 5:00 pm.

The final price guidance for the 10yr ESLA Bond is 19.50%. The extension is to enable investors to complete their internal credit processes for the ESLA Bond

Question: If the full amount isn’t realized what does it mean for the energy bond?

The Sponsor (MoF) and Issuer (E.S.L.A. PLC) are confident in the transaction structure and hence do not want to pay interest above certain levels.

It is for this reason that the Sponsor indicated they were seeking to raise amounts up to GHS 2.4bn for the 7-year and amounts to GHS 3.6bn for the 10-year.

This deal has been a success so far with the 7-year ESLA bond oversubscribed and priced at 19%, approx +120 to comparable government securities.

We are confident we close a decent size on the 10-year later this week at the current guidance of 19.5%, approx +180 to comparable government securities.

Question: If you do not raise the entire GHS 6bn is there another opportunity for the offer to be open?

The maximum amount under the ESLA programme that the structure allows to be issued, based on current cash flow projections and required coverage ratios, is GHS6bn but it has also been designed as a programme.

This means that the issuer has the flexibility to drawdown in stages taking into account demand and price consideration

Question: We hear investors are asking for 20% and above. Would MoF consider such rates?

Answer: Price is an important consideration for MoF and they have demonstrated that they have a prudent and responsible approach to pricing.

It is important not to overpay. The structure is robust and the yield is expected to contract over time.

Question: There were reports that some foreign investors had issues with the security of laws covering the E.S.L.A Act. How do you respond to this issue?

The Bond Prospectus and supporting documentation including but not limited to the Assignment Agreement and Trustee Agreement have been structured to ensure investors are adequately protected.

We will encourage any investor to contact the Issuer or Trustee for copies of the document to enable them to complete their internal approval process.

Question: Are investors no longer interested in Ghana – is investor confidence waning?

This is a new asset class being issued out of Ghana and the broader region. The vast majority of offshore investors that can buy cedi bonds have only got a mandate for Sovereign risk today, this is a corporate issue.

Over time and as the structure performs we expect more offshore buying. As for Ghana risk, the USD Eurobonds have outperformed Sub-Sahara Africa over last week, so broader Ghana sentiment remains robust.

Question: What does this transaction mean for the capital markets in Ghana in the long term?

In the long term, SOEs and Corporates will be able to raise long-tenor funding for infrastructure investments by issuing corporate bonds


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