In a recent report from AXA Mansard, Ghana’s Finance Minister, Ken Ofori-Atta, unveiled the indicative terms for the country’s Eurobond restructuring. This development has raised significant interest and concern among investors, with implications for both recovery values and Ghana’s debt landscape.
Key Points:
- Indicative Terms of Restructuring:
- The restructuring plan outlines a nominal haircut of 30% to 40% on the principal amount.
- Additionally, there is a stipulation for a maximum interest rate of 5% and a tenor limit of 20 years for the debt instruments.
- Anticipated Impact on Recovery Values:
- The proposed terms are expected to result in a decline in recovery value, particularly for investors holding instruments with over a 20-year tenor.
- The nominal haircut of 30% to 40% implies a reduction in Ghana’s debt stock from $13 billion to approximately $9 billion.
- Background and Context:
- Ghana suspended payments on its Eurobond debt in December of the previous year, constituting a significant portion of the country’s public debt load.
- The restructuring is part of Ghana’s broader efforts to meet its debt-reduction target under a $3 billion bailout program from the IMF.
- IMF Program Conditions:
- The conditions set forth by the IMF program include a proposed haircut of 40% to 50% on principal, a coupon rate not exceeding 5% to 10%, and an average maturity of no more than 15 years.
- These conditions are aimed at achieving a sustainable fiscal and debt position, with the goal of reducing Ghana’s Debt-to-GDP ratio from over 100% to 55% within the next 3 to 5 years.
- Market Reaction and Investor Sentiment:
- The announcement of the proposed nominal haircut led to a notable sell-off in Ghana’s Eurobonds, resulting in some of the most substantial losses compared to Emerging Market peers.
- Yields on the 2025 Eurobond surged to a new high, while prices experienced a decline.
- Outlook and Recommendations:
- The Finance Minister has emphasized that while the proposed nominal haircut is an initial proposal, the outlook on Ghana’s ability to meet its credit obligations to bondholders remains uncertain.
- Investors may consider a cautious approach, with potential opportunities arising as pricing stabilizes in the wake of the recent dip.
As Ghana embarks on its Eurobond restructuring journey, the proposed terms and their implications are closely monitored by investors and stakeholders. The evolving situation underscores the importance of prudent decision-making and a thorough understanding of the economic landscape.