Ghana’s bondholders to lose $4.7bn, provide $4.4bn in cash flow relief in new debt deal

Ghana’s bondholders to lose $4.7bn, provide $4.4bn in cash flow relief in new debt deal

Under Ghana’s new debt deal with Eurobond holders following the country’s successful completion of its debt restructuring programme, bondholders will forego $4.7 billion of their investment claims while providing cash flow relief of about $4.4 billion during the country’s MF loan programme.

Ghana reached an agreement in principle with private creditors to restructure about $13 billion of debt, a key milestone in the country’s efforts to restructure its loans.

Under terms of an accord announced on Monday, June 24, 2024, investors accepted nominal losses of 37% on their investment holdings.

“The agreement in principle entails important concessions from bondholders, while providing the required debt relief to the government,” the statement from the international creditor committee said.

According to Bloomberg, the deal presents investors with the choice between two alternatives: a so-called DISCO option or a PAR option.

Investors who go for the former option will receive 5% interest rate on new bonds from January this year until July 2028 and 6% thereafter, according to the statement.

Bondholders who opt for the latter will get a 1.5% interest rate on new bonds without any haircuts.

The announcement marks a major step since Ghana unilaterally suspended payments on external loans and embarked on a debt overhaul in December 2022 to fulfill conditions for a $3 billion IMF program.

It comes after the fund rejected an earlier pact between the government and bondholders in April for failing to meet debt-sustainability requirements.

Ghana’s 2027 bonds jumped to rank among the top performers in emerging markets after Monday’s announcement.

The price of debt due in March 2027 climbed 0.3 cents to 52.69 cents on the dollar.

The IMF’s executive board is expected to meet on June 28 to affirm that the deal fits into debt sustainability parameters.

“The IMF staff has confirmed that thes agreement in principle is compatible with program parameters in the context of the IMF’s second review of Ghana’s three-year program under the extended credit facility,” according to the statement.

“This assessment will have to be officially confirmed following the next IMF board meeting this month for the approval of the second review.”

Ghana, which is reorganizing almost all of its $43 billion of debts under the Group of 20’s Common Framework, concluded a domestic debt exchange last year and earlier this month reached a memorandum of understanding with its official creditors led by France and China to revamp $5.1 billion.

The G-20 mechanism expands the Paris Club of sovereign lenders to include China and other nations.

Given the framework’s comparability of treatment between bondholders and official creditors, the next step will be for the official creditor committee to assess whether the deal fulfills the comparability-of-treatment principle.

Based on the preliminary analysis of the secretariat of the official creditor committee, the co-chairs consider that this agreement-in-principle is “a good basis for a consultation of the official creditor committee members, in order to provide promptly the collective assessment of the official creditor committee regarding the comparability of treatment principle,” according to the statement.