Ghana Dollar Clampdown Pushes Mortgage Lender to Cedi Bonds

Apr 14, 2014 6:40 am ET

(Updates currency in seventh paragraph.)

April 14 (Bloomberg) -- Ghana Home Loans Ltd., a mortgage provider owned by Dubai’s Abraaj Group, is considering dropping a plan to sell dollar bonds in favor of cedi debt after a clampdown on foreign-exchange transactions.

The West African nation’s only provider of home loans excluding banks planned to sell $100 million in tranches over two to three years, Chief Operating Officer Kojo Addo-Kufuor said. The company will now look at issuing the notes without linking them to the greenback and expects the first sale before the end of 2014, he said.

Companies in the world’s second-largest cocoa producer are facing a currency that’s slumped 29 percent against the dollar in the past year, the worst among 24 African peers tracked by Bloomberg. Widening current-account and budget deficits have weighed on the nation’s dollar securities, with the debt losing 1.5 percent in 2014, the worst among 57 emerging-market sovereign-bond indexes compiled by Bloomberg. It will be the first local corporate bond issue since 2008.

“The problem is the inability to offer dollar or dollar- linked asset,” Addo-Kufuor said by phone from the capital, Accra, on April 10. “We have asked the central bank whether debt issues like ours are covered by the rules but no firm answer on that yet.”

Preferred Dollars

In an economy where purchases from school fees to automobiles to rent are paid for in dollars, the Bank of Ghana on Feb. 5 set limits on foreign-exchange withdrawals and curbed offshore currency deals by Ghanaian companies to curb the cedi’s slide. Benjamin Amoah, head of financial stability at the Bank of Ghana, didn’t answer three calls made to his mobile phone on April 11.

“I would’ve preferred a dollar bond that pays coupons in dollars, because that kind of hedges against depreciation of the cedi,” John Ofosu Awuku, a money manager at NDK Asset Management Ltd., which manages the equivalent of $36 million, said by phone April 11. “But if the cedi bonds will be linked to the Treasury bill rate, that would give the investor a net return because Treasury bill rates in Ghana are priced higher than inflation.”

Yields on 91-day T-bills have climbed 485 basis points, or 4.85 percentage points, this year to 24.1 percent at an April 11 auction. The cedi weakened 0.2 percent to 2.78 per dollar by 10:38 a.m. in Accra. Inflation accelerated for a seventh month to 14.5 percent in March from 14 percent in the previous month. Fitch Ratings cut its outlook on Ghana’s debt last month to negative from stable, five months after downgrading the rating by one level to B.

Pension Funds

Ghana Home Loans will target local pension investors, insurance companies and the state retirement-fund manager Social Security and National Insurance Trust, said Addo-Kufuor. The bonds, which will be in five or 10-year tenures, will be open to foreign investors and listed on the Ghana Stock Exchange for secondary trading, he said.

“The bonds being long dated also come handy to pension fund managers like us,” NDK’s Awuku said. “Ghana Home Loans has a good truck record of lending mortgages, which makes me interested. There’s a large housing deficit in the country, meaning the company has market and a good business.”

Ghana has a housing deficit of more than 1.7 million units, Water Resources, Works and Housing Minister Collins Dauda told reporters on Oct. 14.

Lending Rates

Abraaj Group, a private-equity company, bought a majority stake in Ghana Home Loans in October. The mortgage company has previously borrowed from the U.S. government’s Overseas Private Investment Corp., The Hague-based Entrepreneurial Development Bank, Cologne-based Deutsche Investitions-und Entwicklungsgesellschaft mbH and the International Finance Corp. to fund mortgages.

With a loan portfolio of more than $100 million, Ghana Home Loans charges a base lending rate of 12.5 percent for dollar- denominated mortgages, which it gives to people who earn salaries in the U.S. currency, Addo-Kufuor said. Cedi loans are given at 91- or 182-day Treasury-bill yields plus a margin, he said. Yields on 182-day notes were 21.3 percent on April 11.

“We’re not clear on how we’d do a dollar bond in the current environment,” said Addo-Kufuor. “If you get the local market going, it is easy to go. It is more sustainable.”