Ghana's Eurobond holders fret over better terms for local lenders

Ghana’s dollar bonds fluctuated amid concern an offer of better terms to investors in local government securities may shift a bigger burden of a planned restructuring onto holders of the external debt.

The eurobond maturing January 2026, on which the nation missed a coupon payment last week, was little changed after S&P Global Ratings downgraded the note to default. Securities due 2027 and 2035, on which coupon payments are due next month, fell marginally.

Ghana’s three-pronged approach to its debt restructuring — a swap for local securities, a suspension of payments on eurobonds, and negotiations under the Group of 20 Common Framework for bilateral debt — has unnerved investors as authorities took the decisions without consulting them.

While the government has sweetened its swap proposal for cedi-denominated debt, thus showing a willingness to listen to feedback, it also has raised the possibility that terms offered to other creditors would have to be tougher. The restructuring is needed to unlock an International Monetary Fund bailout.

“I see a positive and a negative side,” said Carlos de Sousa, a money manager at Vontobel Asset Management in Zurich, which holds Ghanaian bonds. “On the positive side, the government is showing flexibility to reach an amicable solution with domestic bondholders instead of imposing a restructuring. On the negative side, if the domestic debt restructuring is too modest, then a larger burden may have to fall on external creditors.”
 
Officials have now proposed a 5% coupon in 2023 on debt that domestic investors have been asked to exchange for new bonds. That’s a departure from their initial announcement that they won’t pay interest this year.

The average original coupon rate for 54 cedi-denominated sovereign bonds is 19.2%, according to data compiled by Bloomberg. The list excludes Treasury and cocoa bills, Treasury notes and sinkable bonds.

“Maybe this has increased confidence that the domestic restructuring can get done, so the rest of it can get done quicker too,” said Kieran Curtis, director of investment at abrdn in London, which holds some of the nation’s eurobonds. 

Still, a smooth process is not guaranteed. Ghanaian banks are holding out for better terms. No bank will make a profit in 2022 if they accept the new bonds offered under the exchange, and some face collapse, according to people familiar with ongoing talks.

Meanwhile, S&P’s downgrade of the 2026 dollar bond came as no surprise to investors who say the bonds already priced it in. The lack of a major selloff may also indicate that they expect eventually a better recovery value than the current prices indicate. 

“The news flow on the local debt exchange, which seems stuck, is important to follow over the coming days,” said Philip Fielding, co-head of emerging markets at Mackay Shields. “It seems that getting stakeholders to agree terms to swap local debt is unsurprisingly not easy at all.”

Ghana is restructuring most of its public debt, estimated at 467 billion cedis ($39.2 billion) as at the end of September, to qualify for a $3 billion bailout from the International Monetary Fund. Local bondholders have been asked to voluntarily exchange 137.3 billion cedis of debt for new bonds.

The government has also suspended interest payments on $13 billion of eurobonds, as well as commercial loans and most bilateral obligations. It has further opted in for debt relief under the G20 Common Framework. The Paris Club is working to set up a joint committee of bilateral lenders to start the talks.