Ghana said it will ask holders of its international bonds to accept losses of as much as 30% on the principal and forego some interest payments.
This is in line with the country’s debt-sustainability plan which it is working out in a bid to meet the requirements for a loan from the International Monetary Fund (IMF).
This was disclosed by John Kumah, the Deputy Finance Minister, during an interview with a local radio station.
Contradictory move: Interestingly, the confirmation by Kumah is coming four weeks after President Nana Akufo-Addo vehemently rebuffed speculations that some investors may lose money due to the ongoing negotiations.
Instead, he insisted that the Ghanaian government was taking all necessary steps to protect investors’ earnings amid the ongoing negotiations with the IMF.
The backstory: After being excluded from international debt markets due to a selloff of its dollar bonds that drove yields to distressed levels, Ghana is currently negotiating a $3 billion program with the IMF. This year, the cedi has had the worst performance globally against the dollar, increasing the cost of loan servicing.
The government is considering three-year suspensions of interest payments on foreign bonds and principal reductions. According to Kumah in the broadcast, domestic debt investors would be required to exchange their current securities for new ones that might offer a zero coupon in the first year, 5% in the second year, and 10% in the third year.
The debt restructuring is intended to help Ghana meet sustainability requirements to qualify for the IMF bailout it has been negotiating since September and possibly reach a staff-level agreement with the Washington-based lender by year-end. The government has set up a committee to start a “backstage engagement” with bondholders, Kumah told Joy FM.
For the record: Yields on Ghana’s $1.2 billion 2032 Eurobonds declined 41 basis points on Thursday to 30.49%. The premium investors demand to hold the country’s dollar bonds rather than US Treasuries was 3,008 basis points, well above the 1,000 level considered distressed.
Fitch Ratings would likely lower the country’s long-term issuer default rating to RD, one notch above default, from CC, if debt gets restructured as part of the IMF talks, it told Bloomberg in an interview last month.