Efficiency, Accountability and Integrity

Eurobond holders forgive $4.7bn – $4.4bn also in cash flow relief

June 25, 2024

Ghana has reached an agreement with Eurobond holders to restructure commercial debts of $13.1 billion.The agreement, which will see Eurobond holders take a haircut of 37 per cent or $4.7 billion in addition to delayed repayments, represents the third and final step in the country’s external debt restructuring negotiations.

The Committee of Holders of Ghana’s Eurobonds (the Committee) which announced this yesterday, said the proposed agreement on the restructuring of the Eurobonds would resolve Ghana’s default on the Eurobonds in a manner that provided significant cash flow and debt stock relief to support the country’s economic recovery in the context of the International Monetary Fund (IMF)-backed Extended Credit Facility programme.

Alongside debt relief, the committee said it recognised that the most important factor to support Ghana’s fiscal and debt sustainability going forward was sustained economic policy implementation to bolster macroeconomic stability, improve the investor environment and institutionalise fiscal credibility.

“In particular, the committee welcomes the government’s commitment to reinstate and implement an amended Fiscal Responsibility Act. “The non-financial provisions included in the agreement-in-principle, such as the semi-annual disclosure of public debt, the most-favoured-creditor clause and loss reinstatement clause, are part of the package of measures to normalise relations with bondholder investors and to progress towards restoring Ghana’s international market access,” the statement from the committee indicated.

Towards securing the agreement, the government was advised by Lazard Frères and Hogan Lovells, acting respectively as financial and legal advisors, with the Steering Committee of the Ad Hoc Creditor Committee of International Bondholders being advised by Rothschild & Cie and Orrick, Herrington & Sutcliffe LLP.

Renaissance Capital Africa provided advice on the potential treatment of Ghana’s Eurobonds for the International Steering Committee of the Creditor Committee of Regional Bondholders.

The committee urged all holders of the Eurobonds to carefully consider the terms of the government’s prospective offer in relation to the agreement-in-principle, and make their own independent appraisal of the merits and risks of participation.

The Minister of Finance, Dr Mohammed Amin Adam, said the agreement marked another giant step towards reducing the country’s debt to sustainable levels. He told the Daily Graphic yesterday through correspondence that the country would make some significant savings due to the concessions made by Eurobond holders.

“Bondholders have graciously agreed to provide $4.4 billion in cash flow relief during the IMF programme, in addition to the cancellation of $4.7 billion of the debt stock,” Dr Amin Adam said.

“Indeed, this is a significant concession that will allow us to efficiently navigate our path towards debt sustainability, even while continuing to ensure fiscal prudence and efficient revenue mobilisation,” he said.

Dr Amin Adam commended all Eurobond holders, the Official Creditor Committee of the Paris Club, the bilateral and multilateral partners, and especially the domestic bondholders, for their unwavering commitment to the country.

The Finance Minister also noted that the President had directed that a special fund be set up for all the savings in the debt treatment to be lodged and used for strategic infrastructural investment.

That, he said, would ensure that the economy came back on track. Dr Amin Adam added that the debt treatment would ultimately also help in reversing the depreciating trend of the local currency against other major trading currencies since the beginning of the year.

Debt restructuring

With the country’s debt reaching a rate of almost 90 per cent of Gross Domestic Product (GDP) in 2022, a key part of the country’s three-year programme with the IMF is to bring debt-to-GDP ratio down to a sustainable level of 55 per cent by 2026.

As a result, the government was tasked to restructure both its domestic and external debts as part of the programme objectives. A domestic debt exchange programme which was initially resisted, resulted in the government swapping old bonds worth GH¢82 billion for 12 new ones at reduced interest rates and longer tenors.

On the other external front, the government recently formalised its deal with the Official Creditor Committee through a memorandum of understanding to restructure bilateral debts of $5.1 billion.

What was, therefore, left was an agreement with the Eurobond holders whom the government has been engaging since December 2022.

Expert opinion

Speaking in an interview with the Daily Graphic, the Director of the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey, said the agreement would bring some certainty to the financial market.

“These negotiations have taken so long and it has created a lot of uncertainties, but with this agreement, there is a degree of certainty which is good for the financial market,” he said.

The economist explained that the certainty was essential for forecasting and expressed the hope that “we will see this also play out in the foreign exchange and interest rate markets.”

Prof. Quartey said the implementation of the agreement would also give the government some fiscal space to invest in critical areas of the economy.

Prepare for repayments

He, however, advised the government to set aside part of the savings towards the repayment of the bonds. “The debt has been rescheduled, not forgiven completely, so we will pay at a later date. So we should set aside some of the money in a sinking fund to enable repayment,” the economist said.

Prof. Quartey also cautioned the government to maintain fiscal prudence to ensure that the country did not land in the same situation again in the near future.
He reiterated his call for the introduction of a cap on borrowing.