Ghana’s debt restructuring plans stepped up a gear at the end of last year as the sovereign confirmed it would suspend payments on most of its external borrowings except for multilateral debt and short-term trade facilities.
“This suspension is an interim emergency measure pending future agreements with all relevant creditors,” it said.
The African country had launched a domestic debt exchange offer on December 5. The offer has been extended, following several amendments, to January 16. The amendments offer holders a wider range of maturities on the proposed new bonds, a pledge to pay past due interest, and amend the offer to bonds maturing in 2023.
Regarding the foreign-currency bonds, a coupon was due on one of these on December 16. Under a grace period the country has until January 16 to pay that before it is technically in default.
Ghana’s US$48bn debts are roughly split between domestic and external. The debt relief obtained from domestic creditors will have an impact on how much external creditors will need to provide. That dynamic was generating uncertainty among investors, said a source close to the creditors.
A year ago a US$1.25bn 2032 8.125% bond issue was trading at 80 cents in the dollar. It fell to a low of 28c in October when restructuring speculation heated up. The price has since recovered to 37.50c on hopes the domestic offer will enable the restructuring to be shared.
In its amended offer, the government set a non-binding target of trying to get at least 80% of domestic bondholders by principal value to accept that deal.
IMF pressure?
Ghana launched the domestic exchange during the International Monetary Fund’s mission to the country in early December, to show its intent to tackle its debt issues.
“It’s a bit unclear if the IMF is putting the authorities under pressure to achieve higher participation rates [in the domestic debt reduction plan] before moving on to the next stage,” said the source.
The IMF mission concluded just before Christmas with a US$3bn commitment to support the country, which did not outline any specific financial details, such as how much overall debt relief is required.
Ghana’s volatile political situation with a hung parliament has not helped the domestic debt exchange process. Other indebted sovereigns seeking to reduce their domestic debt piles, such as Greece and Barbados, have used legislation to impose terms on holders.
That has not been possible in Ghana, meaning in-depth discussions with individual groups, such as banks, pension funds, insurers, foreign holders and others have had to take place. The central bank is also understood to hold some of the bonds.
Ghana has also confirmed that a committee of foreign bondholders has been formed, led by Abrdn, Amundi, BlackRock, Greylock and Ninety One.
It is understood this group holds around half of the US$13bn bonds outstanding by value, including a substantial part of the US$1bn 2030 10.75% note issue, which is guaranteed by the World Bank. This trades at a premium to other Ghana bonds.
Ghana is likely to use the Common Framework for its external debt restructuring discussions. This requires agreement among official sector creditors before private sector ones. That has proved a stumbling block for Zambia and others, where China is a major creditor.
However, with Ghana already launching a domestic exchange, there is hope a deal can be reached later this year, said a second source.
CDS decision?
Separately, a committee of investment banks and emerging market investors met on January 4 to decide if credit default swaps for Ghana should be triggered.
The determinations committee met after a question was submitted on December 21, two days after Ghana’s finance ministry published its decision to stop payments on its external debts. On the same day Fitch downgraded Ghana by one notch to C as it viewed the announcement “as the beginning of a sovereign default process”.
The question about a possible credit event is the first faced by a determinations committee since decisions were made, and subsequent auctions completed, in October regarding Ukraine and Russia CDS. With regards to Russia, a decision took months to be reached. No decision was met regarding Ghana. It said it would “continue discussions in due course”.
CDS against Zambia, which suspended its external debt payments in 2020, have not been triggered after a determinations committee rejected a question about that situation. Sri Lanka, which defaulted last year, has not had a question posed about any CDS outstanding. Many emerging market sovereigns have limited instruments issued against them.