Gabon’s Debt Swap Not Distressed Exchange –Fitch
Gabon’s recently concluded local-currency liability management exercise does not constitute a distressed debt exchange, Fitch Ratings says. However, Gabon still faces high foreign- and local-currency liquidity challenges, as reflected in the sovereign’s ‘CCC’ rating.
But Moody’s rating thinks otherwise. Moody’s noted that Gabon debt swap improves the country’s liquidity profile but constitute a distress exchange. The Gabonese authorities announced on 28 April that the exchange of local-currency regional market bonds and bills had been concluded.
Fitch has determined that the exchange did not constitute an event of default as it only met one of two necessary criteria: a material reduction in terms, as outstanding bonds were exchanged for longer maturities.
“We believe the exchange did not meet the second criterion, that the exchange was designed to avoid a traditional payment default.
“Our assessment reflects the limited size of the debt exchange relative to total financing needs in 2025-2026, Gabon’s ability to raise new finance (including via debt market access), its improved prospects for an IMF programme, and the incentives that banks had to participate in the exchange.
The operation will lead to a reduction in debt repayments equivalent to around 1.4% of GDP in 2025 and 0.8% in 2026. It also significantly lengthened Gabon’s debt maturity profile.
Banks had an incentive to agree to exchange their debt holdings because the new bonds issued under the exchange benefit from a 0% risk-weighting under rules set by the regional banking regulator, reflecting additional safety factors based around resources-linked escrow accounts.
Gabon’s liquidity challenges have been amplified by regional debt market tightness. Nonetheless, Gabon raised significant new funding, equivalent to 4.1% of GDP, on regional markets in 2024 and retains regional debt market access.
New funding and securitisation of existing bank debt drove a rise of 7% of GDP in Gabon’s outstanding market debt in March.
Gabon exchanged 5.4% of GDP in local-currency bonds or 34% of its outstanding regional market debt, under the liquidity management exercise.
It exchanged 36% of its bills, switching over half of them to longer maturities, and 27% of its Assimilable Treasury Bonds (OTAs, with original maturities over one year). Gabon also raised 3.1% of GDP in new money, including 2.3% of GDP in new loans amortising over six years at an interest rate of 6.5%.
The availability of foreign currency in the Economic and Monetary Community of Central Africa (CEMAC) has been improving, amid rising liquidity injections by the Bank of Central African States since 4Q24.
“We also believe the organisation of presidential elections on 12 April 2025 and greater clarity over the direction of fiscal policy have supported Gabon’s debt market access in recent months”.
Fitch downgraded Gabon’s ratings to ‘CCC’ in January 2025, based on heightened liquidity strains. Gabon raised around 5.2% of GDP in a private placement of US dollar foreign debt in February 2025, allowing the authorities to buy back the remaining part of its 2025 Eurobond maturity.
However, this came at a yield of 12.7%, the highest ever for an African Eurobond issuance. Fitch forecasts a budget deficit of 2.8% of GDP in 2025, assuming a Brent oil price of USD65 a barrel (bbl) and a tempering of spending programmes.
“We estimate Gabon’s fiscal breakeven oil price at close to USD85/bbl. We believe Gabon is likely to return to an IMF programme in 2025, following the presidential election”.
Nonetheless, Fitch said Gabon’s record of obtaining planned funding from external lenders is poor, which has in the past contributed to the sovereign’s persistent liquidity issues. #Gabon’s Debt Swap Not Distressed Exchange –Fitch Nigerian Exchange Index Hits All-time High in Explosive Rally
