Ghana: Eurobond holders face bigger loss than bilateral lenders in $30bn debt restructuring
Finance Minister Ken Ofori-Atta has stated that Ghana’s private foreign creditors may have to accept less favorable terms than bilateral lenders in order to help the country avoid defaulting on its eurobonds.
Ghana is racing against time to win concessions from creditors in order to unlock a $3 billion International Monetary Fund loan by March. The country has asked for an expedited treatment of its restructuring under the Group of 20’s Common Framework, and reiterated this request during a meeting last month with Paris Club and non-Paris Club creditors.
However, Ghana’s softer approach to bilateral lenders is a setback for eurobond investors who have been clamoring for equal treatment with other lender groups in the restructuring after Ghana said in December it’s stopping payments. Eurobond investors have signaled they would oppose the differential treatment. Kevin Daly, a London-based investment director at abrdn, which is part of the bondholders’ committee, stated that “there will be a lot of noise and a lot of pressure from us from the eurobond side that the terms are similar because we are a much larger creditor. There is a valid argument that the terms should be similar. That would be the argument we are going to be using.”
Ghana’s debt restructuring has been a long time coming. The country sought IMF help in July as it lost access to the international capital markets and investors dumped its eurobonds. The cedi currency tumbled and inflation hovered at 53.6% in January. Gross international reserves declined to $6.2 billion at end-December from $9.7 billion a year earlier, and were enough to cover only 2.7 months of imports, down from 4.3 months in December 2021.
The government just completed the first part of a domestic debt exchange, with investors turning in 83 billion cedi ($6.7 billion) of holdings for new securities, covering 64% of its local debt under reorganization. Ghana is reorganizing almost $30 billion of eurobonds, local bonds, and bilateral loans as part of an overhaul of total public debt that stood at 575.7 billion cedi ($47 billion) as of November.
Debt rose after spending pressures from an energy crisis between 2013 and 2015 and a sweeping banking sector cleanup in 2018 were compounded by shocks from the Covid-19 pandemic and Russia’s invasion of Ukraine. Ghana aims to reduce the ratio of debt to gross domestic product to 55% by 2028 from an IMF estimate of 105% of GDP in 2022.
Ghana’s situation is a stark reminder of the challenges that emerging markets face in the global economy. The pandemic has caused severe economic disruptions around the world, and Ghana is not alone in facing mounting debt and limited options for financing. However, the country’s response to its financial troubles will be closely watched by the international community, especially as other emerging markets may face similar challenges in the years ahead.
