(Bloomberg): Ghana’s dollar-denominated bonds have rallied on concerns that the burden of a planned restructuring could be passed on to foreign debt holders if investors in municipal bonds get better terms. fluctuated.
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Eurobonds due January 2026 were little changed last week after S&P Global Ratings downgraded the bond to default after the country missed a coupon payment. Bonds due 2027 and 2035 fell slightly as coupon payments are due in the next month.
Ghana’s three-pronged approach to debt restructuring — swapping domestic securities, suspending payments on Eurobonds, and negotiating bilateral debt under the G20 common framework — has been thwarted by authorities making decisions without consulting them. , making investors uneasy.
While the government has shown a willingness to indulge in swap proposals for Cedi-denominated debt and listen to feedback, it also raises the possibility that the terms offered to other creditors will have to be tougher. A restructuring is required to lift the International Monetary Fund bailout.
“We see the positive side and the negative side,” said Carlos de Souza, money manager at von Tobel Asset Management in Zurich, which owns Ghana government bonds. “On the positive side, the government has shown flexibility to reach amicable solutions with domestic bondholders instead of forcing restructuring. creditors may be at a greater burden.”
The authorities are currently proposing a 5% coupon on bonds that domestic investors are asked to exchange for new bonds in 2023. This is a deviation from the initial announcement that no interest will be paid this year. Data compiled by Bloomberg show that the average initial yield on 54 Cedi-denominated sovereign bonds is 19.2%. This list does not include US Treasuries and Cocoa Bonds, US Treasuries and Sunken Bonds.
Kieran Curtis, investment director at London-based Abdon, which owns a portion of UK eurobonds, said: “Maybe this gives us more confidence that we can complete the domestic restructuring, so we can complete the rest more quickly. Let’s go,” he said.
Even then, a smooth process is not guaranteed. Ghanaian banks are holding out for better terms. According to people familiar with the ongoing talks, no banks will be profitable and some will fail if they accept the new bonds offered by the exchange in 2022.
On the other hand, S&P’s downgrade of 2026 dollar-denominated bonds was not surprising as investors believe bonds are already priced in. The lack of significant declines could also indicate that we ultimately expect a higher recovery value than current prices suggest.
“It’s important that the local bond exchange news stream, which seems to be stalled, continues over the next few days,” said Philip Fielding, co-head of emerging markets at Mackay Shields. “Getting stakeholders to agree to terms on which to exchange local debt does not appear to be easy at all, of course.”
Ghana has restructured most of its public debt, estimated at 467 billion Cedis ($39.2 billion) at the end of September, and is eligible for $3 billion in relief from the International Monetary Fund. Local bondholders have been asked to voluntarily exchange their debt of 137.3 billion Cedis into new bonds.
The government has also suspended interest payments on $13 billion of Eurobonds, commercial loans and most bilateral debt. In addition, we have opted for debt relief under the G20 Common Framework. The Paris Club is working to set up a joint committee of bilateral lenders to initiate negotiations.
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