Ghanaian institutions urged to utilize corporate bonds to raise capital

Corporate institutions and businesses have been advised to utilize corporate bonds to raise capital as an alternative to short-term financial borrowing instruments.

Mr Michael Cobblah, Chairman of the National Bond Market Committee (NBMCII), who gave the advice, said the bond market provided a relatively safer and predictable stream of income to corporate institutions and besides bonds served as a diversified and conservative investment instrument.

He was speaking to journalists at the end of a day’s workshop organized by the Ministry of Finance in collaboration with the NBMCII for some members of the Institute of Financial and Economic Journalists (IFEJ) in Accra.

The purpose of the workshop was to create the awareness and sensitise the members on the bond market operation and the need to use corporate bonds as an alternative source of financing to stimulate economic growth.

It was also to empower the journalist to step up public education on issues relating to the development of a vibrant domestic bond market and its patronage.

A bond is a debt instrument under which the issuer owes the holders a debt and depending on the terms of the bond, is obliged to pay them interest and or to repay the principal at a later date termed the maturity.

When one purchases a bond, one essentially lends an organization or a company a specified amount of money which the borrower agrees to repay at a designated time.

Mr Cobblah noted that the second and third tiers scheme under the new Pension regime provided a window of opportunity for the domestic bond market.

Under the second tier occupational (or work-based) pension scheme which is mandatory for all employees, the funds would be privately managed and it had been designed primarily to give contributors higher lump sum benefits.

The third tier voluntary provident fund and personal pension schemes which is supported by tax benefit incentives would provide additional funds for workers who want to make voluntary contributions to enhance their pension benefits as well as workers in the informal sector.

Mr Cobblah advised institutions seeking to take advantage of such opportunities to improve their corporate governance as well as their financial and accounting system.

He observed that the corporate bonds market in Ghana was relatively underdeveloped and attributed the challenges of issuance of bonds to a number of factors including macroeconomic uncertainty, lack of longer maturity benchmark treasury yield curve, transaction cost, lack of clear issuance guidelines and the independent credit rating agency.

Mr Cobblah said it was necessary that the Securities and Exchange Commission (SEC) commence work on the development of guidelines for credit rating agencies saying “they must work on the approval of the draft guidelines for the issuance of corporate bonds in the country”.

He recommended that Section 284 of the Companies Act should be amended to enable minimum subscription of any shares or debentures of the company to be underwritten.

He proposed that the permissible investment provision of section 176 of the National Pension Act, 2008 (Act 766) to be amended to enable pension funds to be invested in unlisted corporate bonds.

“Statutory bodies should have their enabling statutes amended to give them explicit borrowing powers from the public.”

On issuance and origination, Mr Cobblah suggested that potential issuers should be engaged and encouraged to issue corporate bonds within a period of two years.

He said SEC could shorten the processing time of approval of prospectus to four weeks and proposed that the maturity profile of government instruments should be extended beyond five years.

He said a minimum two year lock up period of government bonds with maturity of three years and above should be introduced for foreign investors and the Debt Management Division of the Ministry of Finance needed to advise parastatals seeking financing to explore the domestic bond market.

“Government should develop a policy framework for municipals and statutory bodies to access the domestic bond market,” he added.

Mr Lloyd Evans, President of IFEJ, expressed gratitude to the Ministry of Finance and NBMCCII for organising the workshop to enhance the capacity of the journalists.

The NBMCII was inaugurated in 2012 as part of Government’s effort to develop an active bond market in Ghana.

The Committee is to recommend policy measures and reforms to address the weaknesses and deficiencies in the legal and regulatory framework, market infrastructure and other important mechanisms that will help in the mobilization of domestic resources through the promotion of attractive policies to grow and develop the corporate bond market.

Source: GNA