Fitch Ratings has assigned a ‘CCC+’ rating to Ghana’s new US dollar bonds, which were issued on October 9, 2024.
Additionally, Fitch has upgraded Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) from ‘CCC’ to ‘CCC+’.
The agency has affirmed Ghana’s Long-Term Foreign-Currency (LTFC) IDR at ‘RD’, noting that it typically does not provide Outlooks for sovereign ratings of ‘CCC+’ or below.
Furthermore, Fitch has upheld the ‘CC’ rating on Ghana’s US dollar-denominated notes, which are partially guaranteed by the International Development Association (IDA) of the World Bank Group, set to mature in October 2030, before subsequently withdrawing the rating.
The issue rating for the IDA-partially guaranteed note due in 2030 has been withdrawn due to the note’s restructuring.
Eurobond Exchange Concluded
Ghana has successfully concluded a debt exchange for its 15 outstanding non-performing Eurobonds, including the IDA-partially guaranteed notes. This follows consent reached on 98.58% of the total outstanding amount, and each series has received consent representing more than 92% of outstanding principal, meeting the respective collective action clause thresholds.
As a result, the 15 Eurobonds have been exchanged for five new bonds and distribution to eligible holders was completed on 10 October 2024. The assignment of a ‘CCC+’ rating to these five bonds reflects our assessment of Ghana’s expected credit profile after completion of the whole debt restructuring, with a declining debt supported by ongoing fiscal consolidation, and elevated liquidity risks with interest spending relative to revenue which is still high.
Significant Reduction in Terms
In exchange for the 15 outstanding Eurobonds with a total face value of USD13.1 billion, investors were offered a set of new bonds, with two options. Under the ‘disco’ option, a nominal haircut of 37% applies on all claims, which then is restructured into two new notes – a step-up coupon amortising note due 2029 and a step-up coupon amortising note due 2035. The step-up coupon rates range from 5% to 6%.
Under the ‘par’ option there is no nominal haircut but claims are restructured to a 1.5% amortising note due 2037. Both the ‘disco’ option and ‘par’ option receive a zero-coupon amortising note due 2026 and a zero-coupon note due 2030 in exchange of past-due interests. The restructuring does not provide for value-recovery instruments. Tenders representing a total of USD994.8 million opted for the par option (below the cap of USD1.6 billion).
Substantial Debt Relief
The Eurobond exchange entails a reduction in Ghana’s FC debt stock (including PDIs) of around 6% of estimated 2024 GDP. FC debt service is reduced by USD3.5 billion over 2024-2026. Interest payments are reduced by 1.3% of GDP in 2024, 0.9% in 2025 and 0.6% in 2026 compared with interest payments due under the original terms of the bonds. These estimates do not factor in the cost of rolling over bonds (at increased coupon rates, given market conditions) that would have matured in 2023-2026, implying larger actual debt relief.
Declining Debt
Assuming similar treatment is applied to foreign currency commercial debt still requiring restructuring, the reduction in debt stock could reach 7% of the estimated GDP for 2024. Coupled with a robust medium-term growth outlook and ongoing fiscal consolidation, this will contribute to a decrease in central government debt, projecting 70% of GDP in 2024 and 68% in both 2025 and 2026, down from 77% of GDP in 2023.
Official Treatment Adds to Relief
The Eurobond restructuring was designed to align in scale with official sector treatment, although the specific terms for the June 2024 memorandum of understanding have not been disclosed. Incorporating the official treatment would lead to an additional reduction in the debt-service burden.
Remaining FC Debt in Default
The affirmation of the LTFC IDR at ‘RD’ indicates that Ghana remains in default on some external commercial debt while awaiting restructuring. The Eurobond exchange covenants include a most-favored creditor clause, restricting the country from offering more favorable restructuring terms to remaining creditors without providing equivalent value to noteholders. We estimate that Ghana will finalize its external debt restructuring by early 2025.
LTLC IDR Upgraded
The upgrade of Ghana’s LTLC IDR to ‘CCC+’ reflects enhanced confidence that the likelihood of another default on Ghana’s local currency debt is diminishing with the successful completion of the Eurobond restructuring, as this further facilitates access to concessional international finance. On October 4, 2024, Ghana and the IMF reached a staff-level agreement on the third review of the extended credit facility, unlocking USD 360 million once approved by the IMF board.