Ghana and bondholders finalize a preliminary $13 billion debt agreement

Ghana announced on Monday that it has achieved a preliminary agreement with two bondholder groups to restructure approximately $13 billion of its debt, becoming the second African nation to enter the debt restructuring’s final phases this month.

Under the terms of the agreement, bondholders in Ghana will forfeit around $4.7 billion of their loans, resulting in approximately $4.4 billion in cash flow relief until 2026, when the country’s current International Monetary Fund program ends.

The government said, “The formal launch of the consent solicitation is expected in the upcoming weeks,” referring to the procedure by which it will present the proposal to all of its bondholders, if approved of which would lead to the nation’s exit from default.

Reuters broke the story on Thursday. The agreement will result in a primary “haircut” in the bond market of up to 37%.

The accord was deemed “a significant positive step” for Ghana by the IMF. The committee on behalf of its foreign bondholders declared that it would provide a route for the nation’s economic recuperation.

CHOICES

The arrangement follows closely on the heels of one Ghana recently reached with its bilateral creditors and another slow-moving restructuring that took place in Zambia earlier this month.

The 18 months Ghana took “has actually been much faster” than Zambia’s, according to S&P Global Market Intelligence analyst Theo Acheampong, and this could help the country recover.

A request for response was not answered by the Paris Club of creditor states, which typically handles communications for formal creditors.

However, the government stated that the official creditor committee, which is co-chaired by China and France, considered the deal to be a reasonable starting point for discussing its “Comparability of Treatment” concept, which is an analysis meant to make sure bondholders don’t receive unduly advantageous terms.

Bondholders now own two choices.

One is a “disco bond,” with maturities spanning from 2026 to 2029 and an interest rate of 5% that will increase to 6% after mid-2028. It entails a haircut – or write down of ‘principle’ – of 37%.

The second is a $1.6 billion par bond option with three instruments, the principal of which will mature in 2037 with no haircut other than a write-down of past-due interest and pay a 1.5% yield.

The government stated that with regard to a different bond that is partially guaranteed by the World Bank, the unprotected section will be regarded similarly to the other portion of the nation’s bonds, and the multilateral lender will completely pay the guaranteed portion to investors.

IMF FINANCES

As a result of the agreement, on June 28, the IMF board is anticipated to approve the $360 million installment of Ghana’s $3 billion assistance plan.

Following years of overstretched borrowing compounded by the COVID-19 pandemic, the war in Ukraine, and rising global interest rates, the West African exporter of cocoa and gold defaulted on the majority of its $30 billion in external debt in 2022.

In mid-March, Ghana initiated formal negotiations with two groups of bondholders: a consortium of global asset managers and hedge funds, and another comprising regional African banks.

It is resetting its debt under the G20 Common Framework, which has already seen Zambia and also Chad achieve agreements. Ethiopia is anticipated to follow, yet many have criticized the setup for being laborious and slow.

After the agreement was confirmed on Monday, Ghana’s bonds decreased, but they have increased by more than 15% since hopes of a deal started to grow in March.