Fitch Ratings Affirms Ghana’s Long-Term Foreign Currency IDR at ‘Restricted Default’ Despite Successful External Debt Restructuring
Fitch Ratings has affirmed Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at Restricted Default (RD).
The Long-Term Foreign-Currency (LTFC) Issuer Default refers to dollar-denominated bonds.
RD is a credit rating given to a country by Fitch if the said country has defaulted on certain debt obligations.
According to Fitch Ratings, the credit rating affirmation of the country’s LTFC IDR at ‘RD’ reflects that Ghana is still defaulting on its outstanding Eurobonds following the expiration of the grace period for a missed coupon payment in February 2023.
Ghana is expected to pay between $600 million and $800 million in debt service this year of which some $478 million is meant to be paid to Eurobond holders.
Governor of the Bank of Ghana (BoG), Dr Ernest Addison, speaking at the recent 119th Monetary Policy Committee (MPC) press briefing noted that the country has made dollar allocations for the debt service payments due this year including the $478m debt payment to Eurobondholders expected to begin at the end of July.
According to Fitch Ratings, Ghana has since made significant progress in its Common Framework debt restructuring process as an agreement on the main terms of the $5.1 billion official bilateral debt treatment with the official creditor committee was reached in January 2024 and the memorandum of understanding that formalises these terms as well as non-financial terms, was finalised in June 2024.
In June 2024, Ghana and representatives of bondholders who own or control approximately 40% of the outstanding USD13 billion Eurobonds, reached an agreement in principle (AIP) on the terms of the Eurobonds restructuring. This AIP meets both the IMF’s debt sustainability thresholds and the Common Framework’s comparability of treatment clause. An AIP was previously reached in January 2024 but subsequently rejected by the IMF as it did not comply with its debt sustainability thresholds.
According to the Finance Minister, Mohammed Amin Adam, Ghana has secured over $8bn in savings from the restructuring of both official bilateral and Eurobond debts.
The credit rating agency in its rating commentary stated, “We expect the consent solicitation to be launched imminently, and the Eurobond exchange to be settled by September 2024, although there could still be some delays due to ongoing negotiations on the restructuring terms of the International Development Association (IDA)-partially guaranteed bond. Ghana’s FC non-bond commercial debt would still need to be restructured on comparable terms. We expect completion of the external debt restructuring by end-2024.”
Significant Reduction in Terms
In exchange for the 15 outstanding Eurobonds, investors will be offered a set of new bonds, with two options. Under the ‘disco’ option, a nominal haircut of 37% will be implemented on all claims, including past due interests (PDIs), and the remaining claims restructured into bonds maturing from 2026 to 2035 with coupon rates ranging from 0% to 6%.
Under the ‘par’ option, capped at USD1.6 billion, a nominal haircut of 37% will be implemented only on PDIs and the remaining claims restructured into bonds maturing from 2026 to 2037 with coupon rates ranging from 0% to 1.5%. Unlike another recent Common Framework restructuring, the new bonds do not offer value-recovery instruments.
Substantial Debt Relief
If implemented, and assuming the USD1.6 billion cap on the ‘par’ option is reached, the AIP would entail a reduction in Ghana’s FC debt stock of around 6% of estimated 2024 GDP. Interest payments would be reduced by 1.1% of GDP in 2024, 0.8% in 2025 and 0.6% in 2026 compared with initially due interest payments, or 7%, 5% and 4% of 2024, 2025 and 2026 revenue and grants, respectively. These estimates do not factor in the cost of rolling over bonds that would have matured in 2023-2026, implying larger actual debt relief. Assuming similar treatment of non-bond FC commercial debt, the debt stock reduction would reach 8% of estimated 2024 GDP.
