The Republic of Ghana issued a US$1 billion sovereign bond on October 7 with a 15-year final maturity. The sovereign bond is partially guaranteed by a US$400 million Policy Based Guarantee (PBG) by the World Bank Group’s International Development Association (IDA), which allowed Ghana to place the bond successfully under very challenging market conditions for emerging market issuers.
The Ghana PBG was the first IDA Guarantee backstopping government debt raised for budget support purposes. This operation demonstrates how World Bank Guarantees can be used to help emerging countries refinance their existing stock of debt at favorable terms and extend maturities. It also marks a successful return of the World Bank guarantees to the international bond market after 15 years.
The operation was part of a larger World Bank guarantee-support program for Ghana to improve macro-fiscal stability and attract foreign direct investment into the extractives sector and power generation projects. The program includes US$700 million of World Bank guarantees, extended in support of the Sankofa integrated oil and gas project as well as US$300 million of planned guarantees for private-sector-led power generation projects.
Recognizing the value of the PBG credit enhancement, Moody’s and Fitch gave the notes a two-notch upgrade (B1 by Moody’s and BB- by Fitch) from Ghana’s standalone credit rating (B3 by Moody’s and B by Fitch). Ghana achieved an oversubscribed order book for the notes with strong interest from high-quality, long-term investors. The bond issuance widened the country’s investor base as some bond buyers were first-time investors in Ghana’s bonds. It was Ghana’s fourth bond issuance in the international capital markets, but the first one to reach a 15-year maturity. At the time of issuance, it was the longest in sub-Saharan Africa, except for issuances from South Africa.
How the guarantee works
The IDA Guarantee backstops principal and coupon payments on a first-loss basis. It is designed to ensure timely payment of interest and/or principal by making guarantee support available until the bond is redeemed.
The guarantee structure is as follows:
- If Ghana fails to make an interest or principal payment under the bond according to the debt service schedule, IDA pays the missed payment(s) up to US$400 million.
- After each payment date, the remaining balance of the guarantee (US$400 million less payments made by IDA) rolls over and becomes available for the next scheduled payment of interest and/or principal.
- The guarantee cannot be accelerated and can only be called for scheduled and unpaid debt service payments.