Fitch rates Domestic Debt Exchange Programme as distressed

Fitch Ratings has described the recently completed domestic debt exchange programme as distressed, due to a significant decrease in the agreed-upon terms compared to the original contract.

In its recent rating of the country, the ratings agency emphasised the importance of this evaluation since the exchange was necessary to prevent a conventional payment default. Consequently, the nation’s long-term local currency Issuer Default Rating (IDR) has been downgraded to restricted default (RD) from ‘C’.

“This debt exchange constitutes a distressed debt exchange under the agency’s criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default,” Fitch said.

According to Fitch’s sovereign rating criteria, a ‘RD’ rating is consequently assigned to the long-term local currency Issuer Default Rating. Among the 67 eligible bonds that could be tendered, six are rated by Fitch. A ‘D’ rating has been assigned to these six bonds.

An invitation was extended to all bond holders, excluding pension funds, of 67 eligible bonds governed by Ghanaian law and denominated in cedis to exchange their holdings for new bonds. The new bonds carry the same aggregate principal amount as the old ones, and also include applicable capitalised accrued and unpaid interest. However, on average, the new bonds have a lower coupon rate and extended maturity duration compared to the old ones.

Collective investment schemes and individual holders below the age of 59 will receive bonds maturing in 2027 and 2028 with a 10 percent coupon. Individual holders aged 59 or older will receive bonds maturing in 2027 and 2028 with a 15 percent coupon.

All other participating holders will receive a set of bonds with maturity dates ranging from 2027 to 2033 in exchange for bonds maturing in 2023 and a set of bonds with maturity dates ranging from 2027 to 2038 in exchange of bonds maturing after 2023. All these bonds will pay a 5 percent cash coupon and a paid-in-kind coupon of 3.35 percent to 5 percent until February 13, 2025, and cash coupons ranging from 8.35 percent to 10 percent depending on the specific series, from February 14, 2025.

The downgrade of Ghana’s local-currency denominated debt follows the completion of a domestic debt exchange offer by government; a transaction that is an element of the recovery programme for which government is seeking support from the International Monetary Fund (IMF).

On December 12, 2022, Ghana and the IMF reached a Staff-Level Agreement on a three-year arrangement under the Extended Credit Facility (ECF) for about US$3billion.

Fitch also notes that the issue ratings on local-currency bonds issued domestically have also been downgraded to Default (D) from ‘C’. However, it has affirmed Ghana’s long-term Foreign Currency (FC) IDR at ‘C’.

“Fitch typically does not assign rating outlooks to sovereigns with a rating of ‘CCC+’ or below,” it stated.

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