Government's announcement to pay bondholders coupon, principal amounts lacks clarity – Fitch

International credit agency, Fitch, has stated that the press release issued by the government on February 14, 2023, that coupon payments and maturing principals would be honoured “in line with Government fiscal commitments” lacks clarity.

The agency in its latest ratings of Ghana’s Long-Term (LT) Local Currency (LC) Issuer Default Rating (IDR) to Restricted Default (RD) from ‘C’ said the announcement does not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange.

In its view, the announcement in particular, does not clarify whether a principal payment will be made before the expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’.

Fitch noted that interest payments would be significantly reduced in 2023 adding that "Outstanding principal of eligible bonds amounts to GHS132.4 billion (22% of 2022 estimated GDP). Assuming an 80% participation rate equally distributed among eligible bonds and eligible bondholders, the domestic debt exchange would allow Ghana to reduce its interest payments by 1.5 to 2.0 percentage points of GDP in 2023, not considering the cost, in 2023, of rolling over bonds that would have matured in 2023”.

In Fitch’s view, 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.

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.