Eurobond: Ghana not to default in debt repayment – IC Securities
Investment firm, IC Securities, has said Ghana will not default on its pending maturing Eurobonds this year.
According to the investment bank in its country brief report on the country, the $750.0 million loan from the African Export-Import Bank, the $1.3 billion cocoa syndicated loan and the windfall from petroleum revenue will help shore up the country’s reserves, and prevent any default.
The country has a $16 million of the $1billion Eurobond issued in August 7th, 2012 to mature. This was after it was initially issued with a principal amount to $750 million, due to reprofiling of some of the country’s debt.
“Converse to its local counterparts, we do not believe a default on Ghana Eurobonds is imminent as the country will have the $750 million loan (hopefully) from the African Export-Import Bank, $1.3bn cocoa syndicated loan, and the windfall from its petroleum revenue. These inflows should shore up Ghana’s foreign exchange reserves before an International Monetary Fund [IMF] bailout within the next 6-8 month”.
“We do not believe a Eurobond default is imminent. Especially because debt service cost on Eurobonds are currently low—at 12.2% of total revenue and grants. This drastically reduces the possibility of a default on Eurobonds within the next six months, ceteris paribus”, IC securities said.
“Even when we take Ghana’s Balance of Payment pressures into account, the Eurobond risk profile changes slightly—but not by much. And in the worst case—if Ghana were to default on its Eurobonds, the following scenario would play out. At the current price of 47.0 cents to the US dollar, investors could find themselves firmly in the money even with a hefty haircut of 40.0%,” it added.
Touching on the country’s request for an IMF bailout, IC Securities said the IMF bailout provides policy direction, but will not avert an imminent debt restructuring.
Again, it sad if a bailout is smoothly secured within the next eight months, it should provide some level of policy certainty and direction.
“Investors might also have the opportunity to fairly re-price Ghana’s assets. This should help revive consumer and business confidence levels—which are both at devastating lows.
“And though we do not expect the bailout to avert a debt restructuring, we do believe it will embolden policy makers to take interim measures that can relieve the fiscal burden”, IC Securities pointed out.
