Question Three

1. The fourth Ghana Eurobond was successfully issued at 10.75% in 2015 on the following other terms. The bond is a soft amortizing one with tenure of 15 years amortizing in years 2028, 2029 and 2030. The principal will be repaid in three instalments of US$333 million in years 2028 and 2029, and US$334 million in 2030. The 15 year tenure means that Ghana has become the first sub-Saharan African country outside South Africa to successfully issue a 15-year bond, said a release from the Ministry on Wednesday. It was further reported the bond was highly oversubscribed by 100%. A couple of weeks before Ghanas Eurobond, Zambia issued its bond at 9.38%. Government has blamed the higher yield on the bond on turbulent global conditions, whilst other analysts believe the higher yield is a reflection of the weak political and economic fundamentals of the economy in 2015. Required

1. What is the annual explicit cost of the Eurobond in nominal terms (annual dollar cost)?

2. What other implicit costs can you deduce from the Eurobond as well as the effective maturity of the bond?

3. What are Eurobonds and what risk are investors exposed to in this issue and how does the World Bank partial guarantee (40% of the face of the bond) moderate this risk?