Investors rush Ghanaian Eurobonds.

Ghana this week raised $3 billion in Eurobonds. A Eurobond is when a company or government raises a bond in a foreign currency.Even though it is called a Eurobond, it is usually denominated in US dollars. There was overwhelming demand for the bonds as investors placed $14 billion in orders

The breakdown

It raised $750 million in a 40 year Eurobond at a yield of 8.875%. The yield of a bond is the interest paid on it. This is currently the highest yielding bond issued by an African country.

It also sold $1.25 billion of debt with a tenor of six years and a yield of 6.375%. The third portion was a $1 billion bond with a tenor of 14 years, and an 8% yield.

Foreign investors are particularly keen on the bonds because they come at an interest rate, way higher than their inflation. Inflation in Europe is 1.3%. Inflation in the United States is about 2.3%.

What’s in it for the Black Star?

For African countries, foreign borrowing is attractive as it comes at single digit interest rates. The monetary policy rate (which is the interest rate at which the Central Bank lends to commercial bank) is currently at 16%.

Risks

While the interest rate is cheap, there are downsides to borrowing in a foreign currency. In the event of a swing in the exchange rate, the country will have to fork out more money.