Fitch, an international rating agency, has downgraded Ghana’s Long-Term creditworthiness to Restricted Default (RD) from ‘C’.
The issue ratings on domestically issued local-currency bonds have also been reduced to Default (D) from ‘C’.
Fitch also confirmed Ghana’s Long-Term Foreign Currency (FC) IDR at ‘C’ in a statement. Rating Outlooks are typically not assigned to sovereigns with ratings of ‘CCC+’ or lower.
Restricted Default ratings are assigned to an issuer who, 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 filed for bankruptcy, administration, receivership, liquidation, or other formal winding-up procedure, and has not otherwise ceased operations.
According to Fitch, the downgrade of Ghana’s domestic debt in local currency follows the completion of the country’s domestic debt exchange offer. This transaction is part of the government’s recovery plan, for which it is seeking IMF assistance.
Ghana and the IMF reached a Staff-Level Agreement on a three-year arrangement under the Extended Credit Facility (ECF) of approximately USD 3 billion on December 12, 2022.
Except for pension funds, all holders of 67 eligible bonds governed by Ghanaian law and denominated in Ghanaian Cedis (GHS) were invited to exchange their holdings for new bonds with the same aggregate principal amount, plus applicable capitalized accrued and unpaid interest, that has a lower average coupon and a longer average maturity than the old bonds.
Individuals and collective investment schemes under the age of 59 will receive bonds with a 10% coupon maturing in 2027 and 2028. Individuals aged 59 and up will receive bonds with a 15% coupon maturing in 2027 and 2028. In exchange for bonds maturing in 2023, all other participating holders will receive a set of bonds with maturity dates ranging from 2027 to 2033, and a set of bonds with maturity dates ranging from 2027 to 2038 in exchange for bonds maturing after 2023.
All of these bonds will pay a 5% cash coupon and a paid-in-kind coupon ranging from 3.35% to 5.00% until February 13, 2025, and cash coupons ranging from 8.35% to 10.00% beginning February 14, 2025, depending on the specific series.
Given the material reduction in terms relative to the original contractual terms, and given that the exchange is required to avoid a traditional payment default, Fitch considers the debt exchange to be a distressed debt exchange under the agency’s criteria.
According to Fitch’s sovereign rating criteria, the Long-Term Local Currency Issuer Default Rating is assigned an ‘RD’ rating. Fitch rates six of the 67 eligible bonds that could be tendered. These six bonds have received a ‘D’ rating.
According to Fitch, a GHC4.2 trillion principal payment was due on February 6, 2023. Authorities announced in the second amended and restated exchange memorandum issued on February 7 that eligible holders of this bond would not receive a final interest payment or a final principal payment, regardless of whether an eligible holder tendered or not.
The Finance Ministry announced on February 14, 2023, in a press release, that coupon payments and maturing principal would be honoured “in accordance with Government fiscal commitments.”
However, according to Fitch, the announcement does not specify when the payment will be made to holders who opted out of the domestic debt exchange. It is unclear, in particular, whether a principal payment will be made before the grace period for this specific issue expires. This security is one of six issues that have received a ‘D’ rating.
Following the government’s announcement of a suspension of payments on selected external debt, Fitch downgraded the Long-Term Foreign Currency Issuer Default Ratings (IDR) to ‘C’ from ‘CC’ on December 21, 2022. Following that, Ghana requested a restructuring of its external debt through the G20 Common Framework.
A Eurobond coupon payment that was due on January 18, 2023, was not made. Fitch has affirmed the LT FC IDR at ‘C,’ but will downgrade it to ‘RD’ once the grace period for this coupon payment, which expires on February 17, 2023, expires.
