Ghana’s Interim Debt Deal: Objections that led to rejection of initial deal by international bondholders
External bondholders rejected a debt deal proposal made to them by Ghana to restructure over $13bn in debt.
Ghana is aiming to cut $10.5 billion from its external debt repayments and interest costs due from 2023 to 2026.
The failure of the Government and its two international bondholder groups (Western Asset Managers and Hedge Funds; and Regional African Banks) to reach a debt agreement, was due to objections raised by both parties.
For the Government of Ghana, it opposed the proposal made by the bondholders to link interest payments (coupon payments) on the bonds to the country’s future GDP growth rates.
Per the proposal put to the Government, interest payments will increase should economic growth accelerate faster than targets set by the International Monetary Fund (IMF).
Ghana’s economy is expected to expand by some 2.8% this year, with growth accelerating to 5% in 2027 and 2028.
Additionally, the Government opposed a “loss reinstatement clause” that reverts the new bonds it proposed back to their original values in case of another default by the country and provisions to limit the right of the Government to legally challenge the deal.
For the two international bondholder groups, the rejection of the debt deal was due to the heavy discount option of three bonds maturing between 2030 and 2038 with coupons of 5% until 2027 and 6.5% thereafter.
Then there was the “PAR option” offering of bonds with a maturity date in 2043 which would suffer no principal reduction but at a 1.5% coupon rate.
Now, international bondholders who signed up for either option would have also received a separate bond representing accrued “Past Due Interest”. Hence, this bond and either of the discounted options would have had a nominal, face-value haircut of 33% on bonds held by external bondholders.
The rejection of the debt deal by international bondholders is a big blow to the country’s efforts to swiftly emerge from debt default and the current economic crisis.
It is expected that following the rejection of the debt deal by external bondholders, Government through the Finance Ministry and the Bank of Ghana will re-work its debt deal proposal to bondholders, however, the new debt deal must fit into the debt sustainability parameters of the IMF.
The Finance Minister Mohammed Amin Adam and the Governor of the Bank of Ghana (BoG), Dr Ernest Addison, are leading Ghana’s delegation to this year’s IMF/World Bank Spring Meetings which is currently underway.
It is expected that the Governor and the Finance Minister will have discussions with representatives of the two international bondholders on the sidelines of the Spring Meetings following the rejection of the debt deal by the two bondholder groups.
In the meantime, however, Ghana has reached an interim debt relief deal with its bondholders.
This comes days after the International Monetary Fund (IMF) reached a staff-level agreement on the second review of the extended credit facility with the country, thereby, enabling Ghana to access $360 million in financing from the IMF under the $3bn bailout programme.
With files from Reuters….
