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Home Business Banking & Finance

Debt Restructuring: Banks plan for $427m losses

3 years ago
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Debt Restructuring: Banks plan for $427m losses

Ghana’s move to restructure its local-currency and overseas debt is weighing on banks from Africa to the UK.

Four of Africa’s biggest lenders — Standard Bank Group Ltd., FirstRand Ltd., Absa Group Ltd., and Nedbank Group Ltd. — collectively set aside 4.87 billion rand ($267 million) to account for the losses, impairing as much as 57% of local and onshore dollar denominated debt holdings. Meanwhile, Standard Chartered Plc set aside $160 million.

A rare move to restructure local debt — bondholders exchanged 87.8 billion cedis ($7.1 billion) of notes that paid an average of 19%, with bonds returning as little as 8.35% — have resulted in losses for financial institutions. Ghana is restructuring most of its public debt, estimated at 576 billion cedis, to finalize a $3 billion bailout from the International Monetary Fund.

“We dealt with the risk, because as we see it, while there’s a potential for a better outcome, there’s also potential for a worse outcome,” Absa Chief Financial Officer Jason Quinn said in an interview. “So that’s why we took a position to impair those extensively.”

Absa’s unit in Ghana, its third-largest lender by assets, booked 2.7 billion rand as impairment, including 2.2 billion rand for sovereign bonds, and another 500 million rand to cater for other government-related exposures. The lender maintains that its unit remains well capitalized.

Standard Bank, which runs the fourth-biggest lender in Ghana by assets, said it’s ready to re-capitalize the business should they need to, even though the Ghanaian unit’s balance sheet is a “fortress.” The lender holds as much as 2.6 billion rand in Ghanaian bonds.

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“It is unfortunate where they find themselves,” FirstRand CEO Alan Pullinger said in an interview earlier this month. “The debt sustainability just wasn’t there and when you are over-geared, you eventually run out of cash and you have to call a default.”

President Nana Akufo-Addo’s government plans to start “substantive” discussions with international bondholders and their advisers in coming weeks, Finance Minister Ken Ofori-Atta said on Feb. 16. The nation targets cutting its liabilities from an estimated 105% of gross domestic product in 2022 to 55% by 2028.

The costs to local lenders will only be known later given the stock exchange allowed them to delay releasing financials.

Tags: Banksdebt restructuringDebt Restructuring: Banks plan for $427m losses
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