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In Low-Yield World, 13% Can be Good Enough But 20% Insufficient

Moses Mozart Dzawu
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In Low-Yield World, 13% Can be Good Enough But 20% Insufficient

(Bloomberg) -- It was a tale of two African bond auctions: a Rwandan offer of 20-year debt at 13.25% was oversubscribed, while Ghana’s sale of similar-maturity notes at more than 20% flopped.

For both nations, the sales represented their longest-maturity local-currency debt yet. Ghana placed 162.1 million cedis ($30 million) at 20.2%, less than half the target of 450 million cedis. Rwanda, whose economy is a sixth the size of Ghana’s, drew bids for 1.4 times the amount offered as it easily met its target of 15 billion francs ($16 million).

“Rwanda is a much smaller economy but a lot of the macro-economic numbers are scoring better than Ghana,” Christian Mejrup, a Kokholm, Denmark-based senior portfolio manager at Global Evolution A/S, said by phone. “If you look at the debt numbers, the inflation numbers, definitely they are very different.”

It’s not only local-currency investors who are more keen on Rwanda’s debt. The country’s Eurobonds are outperforming Ghana’s too.

Politics are also a worry. After Ghana completed a four-year International Monetary Fund program in April, investors are concerned that the country won’t maintain fiscal discipline in the run-up to elections in December 2020, said Mejrup. The last time the country went to the polls in 2016, its budget deficit ballooned to more than 8% of gross domestic product.

“Every time we enter an election in Ghana we’re all quite worried about the fiscal performance and the outcome of the elections,” said Mejrup. “Rwanda has been enjoying a stable political regime for many years.”

Ghana raised its fiscal deficit projection for the year to 4.5% of gross domestic product from 4.2% in a mid-year review of the budget. The cedi has declined about 10% against the dollar this year, further eroding returns on the nation’s assets for foreign investors. Rwanda’s franc depreciated 2.7% in the same period.

“The yield pick-up is not sufficient to compensate for the risk” of holding Ghana’s debt, Mark Bohlund, an Africa economist at Bloomberg Economics, said in an emailed response to questions. “If you’re a foreign investor then you not only care about the yield on the bond but also at what exchange rate you can repatriate your money.”

--With assistance from Vernon Wessels.

To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net

To contact the editors responsible for this story: Andre Janse van Vuuren at ajansevanvuu@bloomberg.net, Robert Brand

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