Eurobond Investors Take Legal Action Against Banks Over Debt Exchange Losses

Eurobond Investors Take Legal Action Against Banks Over Debt Exchange Losses

A group of Eurobond investors affected by Ghana’s Domestic Debt Exchange Programme (DDEP) have initiated legal proceedings against several commercial banks, challenging their role in the restructuring of sovereign bonds.

Lawyers representing the investors have formally notified the banks of their intent to sue, citing substantial losses incurred due to the restructuring process and subsequent haircuts on their holdings. The investors argue that they placed funds in these instruments based on trust in the commercial banks, which they claim failed to adequately protect their interests.

A segment of the bondholders taking legal action had declined to participate in the DDEP, yet still suffered significant losses as a result of the restructuring.

BackgroundIn September 2024, the Ghanaian government launched the Debt Exchange Programme for Eurobond holders, seeking to restructure $13 billion of outstanding bonds by offering an exchange for new instruments. The offer period, which commenced on 5 September 2024, required bondholders to submit their acceptance by 30 September 2024.

Investors who subscribed before 20 September 2024 were eligible for a 1% consent fee. The programme provided two primary options:

• PAR Option, which preserved nominal value but carried a reduced interest rate of 1.5%.
• DISCO Option, which imposed a 37% nominal haircut but offered higher interest rates ranging between 5% and 6%.

The government has stated that the initiative enabled Ghana to achieve savings of approximately $5 billion in principal reductions and $4.3 billion in debt servicing costs.

Response from the Ghana Association of BanksJohn Awuah, Chief Executive of the Ghana Association of Banks, described the legal action as unexpected.

“We are aware of the litigation threat, and some parties have already initiated legal proceedings against certain banks,” he said in an interview.

Mr. Awuah maintained that commercial banks acted solely as distribution agents for the Eurobond issuance and played no role in structuring the debt exchange.

“The bonds were issued with clear prospectus terms, including collective action clauses,” he noted, adding that existing regulations explicitly protect commercial banks from liability when the principal issuer—the government—fails to meet its obligations.

The case is expected to test the legal standing of financial intermediaries in sovereign debt restructurings, with potential implications for investor confidence in Ghana’s financial markets.