Companies seeking long-term debt financing must consider the bond market as an alternative to traditional bank financing, says Kwamina Asoma-ning, Head, Corporate and Investment Banking, Stanbic Bank.
Mr. Asomaning was speaking during the listing ceremony for a successful GHS78.5 million medium-term note issuance for Bayport Financial Services, under a planned GHS200 million program.
The notes are listed on the Ghana Alternative Market (GAX). Stanbic Bank was the lead arranger for this transaction.
Mr. Asomaning highlighted that whereas bank loans typically contain more restrictive covenants, bond instruments afford businesses greater flexibility in deploying the funds raised.
“In essence, when a company borrows from a bank, they may be required to adhere to certain rules, such as not being permitted to borrow additional debt or vary the use of funds during the term of the loan. In addition, the tenors available in the bond markets can generally exceed those available from banks,” he said.
He pointed out that globally, financial institutions remain one of the largest issuers of notes and bonds. Regrettably, that has not been the case in Ghana.
“There have been a handful of banks that have issued commercial paper, which are short-term in nature,” he said.
The next logical step, according to him, was for financial institutions as well as other corporates to issue medium-term notes to diversify their funding sources.
“If companies raise some debt from the bond market and some from banks, they are able to ensure financial discipline while at the same time maintaining some flexibility in how they spend the funds they have borrowed and not being beholden to a single lender,” he said.
Lauding Bayport for being a pacesetter in that regard, Asomaning said Stanbic Bank intends to bring Bayport and other clients to a place where there is an appreciation for the diversification and flexibility that bonds offer to businesses in their funding mix.
“With 29 banks in the country you can imagine that businesses are spoilt for choice when it comes to bank financing,” Mr. Asomaning said.
He said, “One of the more difficult discussions we have with our clients who are close to exhausting their bank debt capacity is for them to look to alternative forms of financing, whether bonds or equity.”
He projected that as interest rates decline, the market conditions for further bond issuances should be more conducive.
He therefore, urged other companies to take a cue from Bayport and tap into the bond market in order to deepen their pools of capital and widen their investor base.
This maiden offer by Bayport Financial Services under the Note Programme constitutes a landmark transaction. Oversubscribed by 57 per cent, the transaction represents the single largest corporate bond listed on the Ghana Alternative Market to date, following three other listings.
The Ghana Alternative Market (GAX) is a similar market to the Ghana Stock Exchange First Official list but focuses on businesses with potential for growth and poses less stringent conditions for listing.
By Times Reporter