Successful participation in debt exchanges boosts liquidity by GH¢45bn; alleviates liquidity concerns on cash coupon payments
The settlement of pension funds, USD-denominated bonds, and Cocoa bills alternative debt exchanges, with participation rates of 92%, 95%, and 97%, respectively, took place on Monday, September 4, 2023.
These exchanges, which ran concurrently with domestic USD-denominated bond, pension fund, and Cocoa bill alternatives, concluded last week.
GCB Capital Research notes that the successful completion of the alternative exchange for Government of Ghana (GoG) bonds injected approximately GH¢45 billion into the new bond stock, alleviating immediate liquidity concerns stemming from cash coupon payments.
Notably, interest rates on Cocoa bills decreased significantly, from an average of over 30% to 13% through the exchange, thereby reducing the high-interest obligations of COCOBOD and, consequently, lowering contingent liabilities within the Cocoa sector for the central government.
Although the terms of the exchange remained largely unchanged, the government introduced an amendment for pension fund exchanges. This amendment imposed an 8% withholding tax on coupons and a 3% withholding tax on capital gains resulting from secondary market trades in exchanged bonds.
The 3% withholding tax on capital gains will also be considered part of the eligible holder’s chargeable income for tax assessment, subject to the applicable corporate income tax rate unless explicitly exempted by law.
Looking forward, there may be a closer examination of other non-marketable debts held by certain banks and obligations owed to Independent Power Producers (IPPs).
Nevertheless, it is believed that the conclusion of these three exchanges marks the end of the market-oriented domestic debt exchange program. The Treasury’s focus will now shift towards the first review of the program, supported by the Extended Credit Facility, scheduled for September 2023, followed by external debt operations.
