Coupon Payment: Fitch Downgrades Ghana to 'Restricted Default'

Coupon Payment: Fitch Downgrades Ghana to ‘Restricted Default’

Fitch Ratings on Tuesday downgraded Ghana’s long-term foreign-currency issuer default rating to ‘restricted default’, after the country missed the grace period to make a coupon payment on one of its Eurobonds.

Ghana on Friday missed making the $40.6 million coupon payment on its $1 billion 2026 Eurobond, as part of the suspension of payments on selected external debt that the government announced in December last year, Fitch said.

It said the downgrade of Ghana’s local-currency denominated debt follows the completion of a domestic debt exchange offer by the Republic of Ghana.

According to Fitch, this transaction is an element of the recovery programme for which the government is seeking the support of the IMF. On Dec. 12, 2022, Ghana and the IMF reached a Staff-Level Agreement on a three-year arrangement under the Extended Credit Facility (ECF) of about USD3 billion.

All holders, except pension funds, of 67 eligible bonds governed by Ghanaian law and denominated in Ghanaian Cedis (GHS) were invited to exchange their holdings into new bonds with the same aggregate principal amount, plus applicable capitalized accrued and unpaid interest, which have in the aggregate a lower average coupon and extended average maturity than the old bonds.

It noted that collective investment schemes and individual holders below the age of 59 will receive bonds maturing in 2027 and 2028 with a 10% coupon. Individual holders aged 59 or older will receive bonds maturing in 2027 and 2028 with a 15% coupon.

All other participating holders will receive a set of bonds with maturity dates ranging from 2027 to 2033 in exchange of bonds maturing in 2023, and a set of bonds with maturity dates ranging from 2027 to 2038 in exchange of bonds maturing after 2023.

Fitch said All these bonds will pay a 5% cash coupon and a paid-in-kind coupon of 3.35% to 5.00% until Feb. 13, 2025, and cash coupons ranging from 8.35% to 10.00%, depending on the specific series, from Feb. 14, 2025.

In Fitch’s view, this debt exchange constitutes a distressed debt exchange under the agency’s criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default.

According to Fitch’s sovereign rating criteria, a ‘RD’ rating is consequently assigned to the Long-Term Local Currency Issuer Default Rating. Among the 67 eligible bonds that could be tendered, six are rated ‘D’ by Fitch.

It noted that a GHS4.2 billion principal payment was due on Feb. 6, 2023. In the second amended and restated exchange memorandum released on Feb. 7, authorities announced that eligible holders holding this bond would not receive a final interest payment and a final principal payment, regardless of whether an eligible holder has tendered or not.

In a press release issued on Feb. 14, 2023, authorities announced that coupon payments and maturing principals would be honoured “in line with Government fiscal commitments.”

This announcement did not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange, Fitch Ratings said.

In particular, it does not clarify whether a principal payment will be made before the expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’.

The rating note stated that the outstanding principal of eligible bonds amounts to GHS132.4 billion.

Assuming an 80% participation rate equally distributed among eligible bonds and eligible bondholders, the domestic debt exchange would allow Ghana to reduce its interest payments by 1.5 to 2.0 percentage points of GDP in 2023, not considering the cost, in 2023, of rolling over bonds that would have matured in 2023.

Fitch downgraded the Long-Term Foreign Currency Issuer Default Ratings (IDR) to ‘C’ from ‘CC’ on Dec. 21, 2022, following the government’s announcement of a suspension of payments on selected external debt.

Ghana subsequently asked official creditors for a restructuring of its external debt under the G20 Common Framework. A Eurobond coupon payment, due on Jan. 18, 2023, has not been honoured.

Fitch has affirmed the long-term foreign currency issuer default rating at ‘C’ but will downgrade it to ‘RD’ after the end of the grace period for this coupon payment that expires on Feb. 17, 2023. It added that the ‘CC’ rating for the partially guaranteed U.S. dollar-denominated notes due October 2030 has been affirmed.

#Coupon Payment: Fitch Downgrades Ghana to ‘Restricted Default’ Naira Steadies as Banks Issue Update on FX Purchase