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By Tosin Sulaiman
JOHANNESBURG, July 25 (Reuters) - Ghana sold a $750 millionEurobond on Thursday in its second foray into international bondmarkets, but paid a premium to compensate investors wary aboutits burgeoning fiscal and current account deficits.
The West African cocoa and gold producer, which discoveredoil in 2007, issued the 10-year bond at a yield of 8 percent,sources told Reuters.
The order book was around $2 billion, just over two and ahalf times the issue size, the sources said.
With an economy set to grow by 8 percent this year and arecord of political stability, Ghana is well liked by foreigninvestors, who are also active participants in its domestic bondmarket. The country followed on the heels of African peersZambia, Nigeria and Rwanda who have also tapped internationalinvestor appetite for high yield in the past year.
Ghana's debut $750 million 10-year bond launched in 2007, was four times oversubscribed and was issuedat a yield of 8.5 percent.
The yield on the new bond, at a premium to the 2017instrument which is trading at around 6 percent, suggestsinvestors were unwilling to overlook Ghana's worsening fiscalsituation.
Ghana is struggling to contain a budget deficit that surgedto 11.8 percent of gross domestic product in 2012, from 4percent in 2011, according to a prospectus for the Eurobond,partly as a result of steep public wage increases.
"This suggests that Ghana offered a decent premium tocompensate investors for the risks associated with the country'sfiscal and macroeconomic imbalances," said Samir Gadio, emergingmarkets strategist at Standard Bank.
President John Dramani Mahama's government, which tookoffice early this year, has said it aims to reduce the deficitto 9 percent of GDP in 2013.
But analysts say the deficit appears to have becomestructural and could widen again as spending increases ahead ofelections in 2016.
"You now face an economy where the strategy in order to fundthe deficit is to borrow and that's not sustainable in the longrun," said Gadio.
By not issuing earlier in the year before a selloff inemerging market assets, Ghana also missed a "massive"opportunity as it could have paid around 5 percent, said oneinvestor. The yield on the 2017 bond traded as low as 4.24percent in April.
"What alarmed us as investors is the fact that the timingwas bad," said the investor, who declined to be named. "Based onour analysis, the opportunity cost loss is at least $100 millionon a net present value basis. That's four district hospitals ifyou want it in social terms."
Ghana, the world's second-largest cocoa producer andAfrica's biggest gold producer after South Africa, is rated B byStandard and Poor's and B+ by Fitch, which revised the country'soutlook to negative from stable in February.
Besides the budget deficit, its current account shortfallhas also expanded, to $4.92 billion or 12.3 per cent of GDP,from $2.15 billion in 2007.
Public debt increased to 49.4 percent of GDP in 2012, from40.8 percent in 2011, higher than peers such as Nigeria whichhas a debt-to-GDP ratio of 18.6 percent.
The government plans to use the bond's proceeds for capitalexpenditure and refinancing public debt to reduce the cost ofborrowing.
