Ghana and its bondholders have achieved a preliminary agreement to restructure Ghana’s $13 billion Eurobonds.
In addition to having their bonds’ maturity extended, bondholders may have to take a haircut of up to 37% on principal, according to sources who spoke with Reuters.
This accord formalizes a debt restructuring plan that was first agreed upon in January 2024 and comes after the nation recently finalized a deal with the official creditor committee. The government will soon be able to obtain a fresh funding tranche from the International Monetary Fund thanks to the debt restructuring arrangements.
The agreement’s specifics made it possible for the IMF executive board to approve a second review of Ghana’s $3 billion loan package, which in turn made the next $360 million tranche easier to release.
Ghana’s attempts to restructure its debt
Ghana experienced an economic crisis in 2022 as a result of the nation collapsing under the weight of its mounting debt and diminishing earnings. As a result, the nation began the process of applying for an IMF lending facility.
In exchange for the $3 billion loan facility that the IMF was seeking, the nation was required to sign a debt restructuring agreement. Bondholders holding local currency were the first to benefit, as the nation organized a domestic debt swap program.
The domestic bondholders suffered large haircuts as a result of the Ghanaian authorities’ December 2022 domestic debt swap programme. The restructuring of the Ghanaian bonds had an impact on the income statements of Nigerian banks as well, costing them almost N284 billion in damages.
The Ghanaian government’s initial action in reorganising its debt enabled it to get the first $600 million installment of the $3 billion credit facility offered by the IMF.
Following discussions for the second tranche that began in January 2024, the nation and the Official Creditor Committee (OCC) came to an agreement in principle for the country to restructure its $5.4 billion loan.
China and France serve as the chairs of the official creditor committee, which represents the nation’s bilateral lenders. The Ghanaian government made progress towards obtaining the IMF’s executive board clearance for the second tranche of $360 million in June 2024 when they were able to strike an agreement with the OCC.
Negotiated under the G20 Common Framework for Debt Treatment, the agreement with the OCC was concluded.
The loans denominated in foreign currencies that need to be restructured come after the country’s bilateral loans and domestic bonds (Eurobonds).
Ghana hopes to reduce its debt by up to $10.5 billion between 2023 and 2026, according to a Reuters article. One of the conditions of the IMF lending facility is that the nation must lower its public debt-to-GDP ratio from 88.1% at the end of 2022 to 55% by 2028. This can only be accomplished with the help of debt relief.
Effect on Nigerian investors in Ghana’s Eurobonds
The Ghanaian Minister of Finance declared in December 2023 that domestic bondholders would not face principal haircuts. Nonetheless, it is estimated that the bondholders lost almost $7 billion, or 106.64 billion Ghanaian Cedis.
Nigerian banks suffered over $1 billion in losses as a result of the restructuring, making them a major participant in the losses. The amount of Ghanaian Eurobonds held by these Nigerian institutions is yet unknown. However, because of the Naira’s devaluation from January 2023 to the present, there is a greater chance of substantial losses with the anticipated 37% haircut on principal.
