Investors await clarity on reopened DDEP

Amid uncertainty surrounding the reopened Domestic Debt Exchange Programme (DDEP) for Daakye Trust PLC and ESLA PLC, the market anticipates a tempered performance in the financial markets – particularly on the primary front.

Investors are eagerly awaiting additional details concerning the domestic debt exchange’s reopening and forthcoming decision from the Bank of Ghana (BoG) Monetary Policy Committee (MPC). This cautious approach is expected to cast a shadow over primary market activities, with experts closely monitoring developments.

“We expect activity on the primary market to be moderated by the need for further clarification on reopening the domestic debt exchange, and also news surrounding the MPC meeting that started September 19, 2023,” Constant Capital mentioned in its weekly monitor.

Government’s announcement on September 13, 2023 regarding the reopening of its invitation to debt exchange has further complicated market dynamics. In a statement issued this week, members of the Pensioner Bondholders’ Forum have rejected another attempt by government to rope them into the Domestic Debt Exchange Programme (DDEP).

Similarly, the Ghana Association of Banks (GAB) earlier this month declared that its member-banks will refrain from participating in any further rounds of the DDEP until they receive official communication from government confirming the programme’s end – since additional burdens on the banks could lead to collapse of their operations.

This invitation extends to holders of unexchanged government bonds – Daakye Trust PLC and ESLA PLC – for a new set of bonds. The target issuance size for this reopened offer is GH¢12.94billion, with terms identical to the initial DDEP across different categories. This invitation supports investors who may liquidate these bonds before maturity, as it allows them to exchange less-liquid notes and bonds for potentially liquid ones.

“While government will continue honouring its obligation to holders of these bonds, the evidence post-DDEP suggests the Treasury may prioritise servicing the exchanged debts amid domestic resource challenges,” GCB Capital also noted in its weekly review of the market.

In the upcoming week, the Treasury is set to refinance maturing debt with a total face value (FV) of GH¢ 2.41billion in the 91- and 182-day bills. To achieve this, government aims to raise GH¢2.59billion in the next primary auction scheduled for Friday.

However, last week saw a dip of enthusiasm in the primary market, breaking a four-week streak of oversubscription. The Treasury managed to secure GH¢3.35billion of its GH¢3.76billion target, representing an undersubscription of 10.86 percent.

This shortfall means that only 95 percent of the maturing FV of GH¢3.5billion will be covered. As expected, yields continued to rise – with the 91-day, 182-day and 365-day papers settling at 28.12 percent, 29.39 percent and 32.17 percent respectively at the auction’s end.

The previous T-bill auction witnessed a total demand of GH¢3.15billion; a 7 percent increase week-on-week against a target size of GH¢3.76billion, marking a substantial 44.5 percent weekly increase. The Treasury accepted 99.9 percent of the tendered bids, yet this still fell 16 percent short of the auction target and 10 percent below the T-bill maturity obligation.

The primary reason for this shortfall was the significantly larger target size and weekly refinancing obligation compared to the steady growth in demand. The benchmark 91-day bill reached 28.12 percent, indicating a 33 basis-points week-on-week increase. The 182-day and 364-day bills also saw upward movements, settling at 29.29 percent and 32.17 percent respectively.

On a separate note, the Consumer Price Index (CPI) data released last week indicated that headline inflation eased by 3 percent in August 2023. This decline comes just ahead of the MPC meeting scheduled from September 19th to 22nd.

MPC action

Despite lingering upside risks from petroleum prices, experts anticipate that inflation will continue to decrease throughout the fourth quarter of 2023, primarily due to favourable base drift effects. Consequently, it is expected that the Monetary Policy Committee will maintain a rate-neutral stance for the remainder of 2023, with a potential pivot in the first quarter of 2024 once inflation eases sufficiently.

The upcoming Bank of Ghana MPC meeting is pivotal to the nation’s economic outlook, and investors are keenly watching for signs of how the central bank will navigate these complex market conditions.