International rating agency, Fitch, has further downgraded Ghana’s Long-Term creditworthiness to Restricted Default (RD) from ‘C’.
The issue ratings on local-currency bonds issued domestically have also been downgraded to Default (D) from ‘C’.
In a statement, Fitch also affirmed Ghana’s Long-Term Foreign Currency (FC) IDR at ‘C’. Fitch typically does not assign Rating Outlooks to sovereigns with a rating of ‘CCC+’ or below.
Restricted Default ratings indicate an issuer that in Fitch’s opinion has experienced an uncured payment default or distressed debt exchange on a bond, loan or other material financial obligation, but has not entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedure, and has not otherwise ceased operating.
According to Fitch, the downgrade of Ghana’s local-currency-denominated debt follows the completion of a domestic debt exchange offer by the country. This transaction is an element of the recovery programme for which the government is seeking the support of the International Monetary Fund.
On December 12, 2022, Ghana and the IMF reached a Staff-Level Agreement on a three-year arrangement under the Extended Credit Facility (ECF) of about USD 3 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 has in the aggregate a lower average coupon and extended average maturity than the old bonds.
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 for bonds maturing in 2023, and a set of bonds with maturity dates ranging from 2027 to 2038 in exchange for bonds maturing after 2023.
All these bonds will pay a 5% cash coupon and a paid-in-kind coupon of 3.35% to 5.00% until February 13, 2025, and cash coupons ranging from 8.35% to 10.00%, depending on the specific series, from February 14, 2025.
In Fitch’s view, the 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, an ‘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 by Fitch. A ‘D’ rating has been assigned to these six bonds.
Fitch states that a GHC4.2 trillion principal payment was due on February 6, 2023. In the second amended and restated exchange memorandum released on February 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 February 14, 2023, the Finance Ministry announced that coupon payments and maturing principals would be honoured “in line with Government fiscal commitments.”
But Fitch states that this announcement does not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange. 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’.
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 January 18, 2023, has not been honoured. Fitch has affirmed the LT FC IDR 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.