GHANA’S attempts to restructure $13bn of international bonds suffered a setback as the government failed to reach a deal with two bondholder groups, hampered by challenges posed by IMF debt sustainability parameters. Talks, which commenced on March 16, were derailed after the IMF indicated that the proposed deal did not align with its debt sustainability thresholds.
The two bondholder groups, comprising Western asset managers, hedge funds, and regional African banks, voiced objections to elements of the proposed rework, Reuters reported. The regional African bondholder group rejected an option to retain the original value of the bonds with a longer maturity and lower coupon.
Ghana defaulted on most of its external debt totalling about $30bn in December 2022, plunging into an economic crisis marked by surging debt costs, inflation, and dwindling reserves. Despite economic recovery, with the economy growing 2.9 percent in 2023, Ghana remains ensnared in negotiations to alleviate its debt burden.
‘The Government is actively working on solutions that it believes would be consistent with IMF programme parameters under the set of policies currently being discussed, with the objective of reaching a mutual agreement acceptable to all parties,’ the government stated in a regulatory announcement.
The failed negotiations led to a decline in the value of the dollar-denominated bonds, known as eurobonds, trading between 46 and 48 cents in the dollar mark.
Samuel Sule, CEO at Renaissance Capital Africa and financial advisor to the regional bondholder group, expressed optimism, stating, ‘Regional bondholders believe the Ghanaian economy’s strong performance compared to the IMF’s original analysis of its debt sustainability could pave the way to a deal by the end of 2024.’
Ghana, Zambia, and Ethiopia are restructuring debt under the G20 Common Framework, established during the Covid-19 pandemic to expedite debt overhauls. However, progress has been sluggish, with Zambia facing obstacles from official creditors before eventually reaching an agreement in principle in late March.
Finance Minister Mohammed Amin Adam conveyed confidence, stating, ‘Ghana is confident… at some point it will reach an agreement with bondholders.’ However, IMF Ghana mission chief Stephane Roudet emphasised the need for continued progress in talks with bondholders.
Ghana aims to slash $10.5bn from its external debt repayments and interest costs due from 2023 to 2026. An agreement in principle was reached in January to rework $5.4bn of loans with official creditors, contingent on confirmation that the bondholder deal is comparable to the offered terms.
The proposed bondholder deal included discounted options with reduced principal and coupon rates, alongside a ‘PAR option’ offering no principal reduction. However, differences in outlook prompted discussions on additional conditions, including the use of state-contingent debt instruments.
As negotiations continue, Ghana navigates a complex landscape to secure a restructuring deal that meets the expectations of both bondholders and international financial institutions.