First maturity of new bonds yields over GH₵2bn coupons

Approximately 85% of bondholders participated in the Domestic Debt Exchange Programme (DDEP) yielding GH₵‎82.9 billion (GH₵‎82,994,510,128) and the first maturity of new bonds is already here.

With a five per cent cash coupon rate for 2023, it is estimated that the coupon obligation on the new bonds will amount to about GH₵2 billion in August.

Samuel Ofori Amanfo, an economist says investors are on edge as the looming August 22 deadline for the Treasury’s August 2023 coupon obligations approaches.

According to him, investors are on edge because concerns about the delays in servicing old bonds in the past, which were left untouched during the DDEP.

GH₵290m coupon on unredeemed old bonds

According to recent data, calculations based on outstanding balances of the unredeemed old bonds suggest a principal obligation of approximately GH₵6.06 billion and a coupon obligation nearing GH₵290 million for the specified period.

GH¢1.84bn principal and coupon obligation

Furthermore, a combined principal and coupon obligation of around GH¢1.84 billion were due within the past months, preceding the payment date for the new bonds in August 2023.

Mr Amanfo predicts that the upcoming coupon payments for the new bonds, along with the government’s commitment to fulfilling obligations on the old bonds, are poised to significantly influence market dynamics in the second half of 2023.

Govt suspends external debt payments

In December, government suspended payments on most of its external debt including Eurobonds, commercial loans and most bilateral loans.

The suspension excluded the payments of multilateral debt, new debts (whether multilateral or otherwise) contracted after December 19, 2022, or debts related to certain short-term trade facilities.

GH₵123bn additional DDEP

Pension fund holdings, cocobills, dollar denominated local bonds, local currency loans and government’s debt to Bank of Ghana (BoG), totaling some GH₵123 billion are also being restructured.

GH₵31bn Pension funds debt exchange

Pension funds have been offered to exchange about GH₵31 billion ($2.7 billion) of existing investments that carry an average coupon of 18.5% for two new bonds maturing in 2027 and 2028 with an average interest rate of 8.4%.

Overall, the offer preserves the net present value of pension funds current holding of old bonds at a 21% discount factor.

GH₵15bn locally issued U.S. dollar bonds and cocoa bills

Government reached an agreement with banks to restructure GH₵15 billion ($1.36 billion) of locally issued U.S. dollar bonds and cocoa bills.

Govt debt owed to BoG write off
Half of government’s GH₵77 billion debt to the country’s central bank has been wiped off, and the remaining balance has been replaced with a 15-year bond with a reduced rate.

GH₵44.8bn interest payments in 2023

In the 2023 mid-year budget review, interest payments have been revised downwards by 14.6%, to GH₵44.8 billion (GH₵44,866 million) representing 5.2% of GDP from GH₵52.5 billion (GH₵52,550 million) representing 6.6% of revised GDP, mainly reflecting the outcome of the ongoing completed part of DDEP.

It is clear that the pressure on government in respect of payment of its debt is high. 

In the political arena, Mr Amanfo noted that the government’s adherence to its bond agreement, encompassing both old and new bonds, carries significant weight as the likelihood of a successful re-election bid [breaking the 8-year mantra] in 2024 becomes increasingly uncertain.

He said this move would not only boost investor confidence but also send a pivotal signal throughout the market.

He referred Fitch Ratings which sounded a clear warning of potential downgrades if the first coupon payments due in August 2023 are not honoured.

In its July 2023 report, Fitch indicated that failure to meet these payments could lead to a downgrade of the issue ratings on the bonds issued upon the completion of the domestic debt exchange.

The country’s ratings were affirmed at ‘RD’.

However, Fitch also highlighted factors that could potentially lead to positive rating actions, including restoring relations with a majority of non-tendered securities bondholders and successfully restructuring local-currency bonds held by pension funds.

Fitch would then assess Ghana’s Long-Term Local-Currency IDR based on its ability and willingness to honor its local-currency debt commitments.

DDEP has not been without controversy, particularly marked by the Pensioner Bond Holder’s Forum’s (PBHF) protests against the pending principal and coupon payments on old bonds.

The PBHF members have previously picketed outside the Finance Ministry in protest of their inclusion in the DDEP, a requirement for securing a $3 billion bailout from the International Monetary Fund.

The recent suspension of protests followed the government’s demonstration of commitment by resuming coupon payments on June 27, temporarily averting another planned picketing on June 29, 2023.

While the government granted the pensioners exemption from the programme after facing pressure, it still struggled to meet matured coupon payments consistently.

“The settlement of coupon arrears and the commitment to pay off the outstanding principal is a positive step, but there is still a significant obligation that remains.

“We are eagerly waiting to see the government’s actions, which will shape our next steps,” stated a PBHF representative.

Mr Amanfo pointed out that the repercussions of the bond situation have already impacted commercial banks, which experienced significant impairments in 2023, leading to capital erosion.

Banks lost GH¢14.81bn in 2022

Collectively, the 2022 audited accounts show that the banks record direct losses of about GH¢14.81 billion and indirect losses amounted to GH¢1.22 billion induced by Domestic Debt Exchange Programme (DDEP) which started in the last quarter of 2022.

However, there are signs of recovery as banks record GH¢4.3 billion profit-after-tax for the first half of 2023, an increase of 51.4% over the GH¢2.8 billion recorded in 2022.

Mr Amanfo stated that a successful coupon payment in August, without distress, could potentially prompt banks to re-evaluate their holdings of domestic treasury bonds.

According to him, market observers cautioned that the substantial principal obligation and additional strain from coupon payments could have ripple effects on the banking sector and bond investors.

He noted that the outcome of these impending obligations and their potential ramifications will undoubtedly mould the financial landscape in the market.

Because credibility is at stake and the stakes are high, he advised government to act in good faith by promptly repaying its restructured bonds that fall due on Wednesday since investors expect the government to meet its obligations.

Mr Amanfo said Ghanaians are anxiously waiting on how government repays its matured bonds to determine if NPP is a government that keeps its words.

“Yes, to gauge if NPP is caring enough to warrant breaking the 8 in the upcoming 2024 election.

“The entire world is watching to see how Ghana successfully handles its restructured domestic bonds,” he said.

Mr Amanfo  emphasised that government must do all it can by rising to the occasion as default on its restructured domestic bonds will have dire consequences on not only its external debt restructuring but also on the general economic recovery process currently underway.