Swift Ghana debt rework would benefit Eurobond prices, says JP Morgan

Ghana is aiming for US$10.5 billion of debt service relief for 2023-2026 as it restructures two-thirds of its US$30 billion external debts

A swift conclusion to Ghana’s external debt restructuring would benefit its international bond prices but the talks may be tricky and holders could face a write down of up to 50%, analysts said after the country secured a US$3 billion IMF rescue loan.

Ghana is aiming for US$10.5 billion of debt service relief for 2023-2026 as it restructures two-thirds of its US$30 billion external debts, according to the International Monetary Fund’s Debt Sustainability Analysis published on Wednesday, giving more hints on what sort of hit international bond holders might face.

JPMorgan calculated that current prices for Ghana’s Eurobonds imply a 14% “exit yield” but a quick restructuring could improve it to 12%, JPMorgan analysts said in a note to clients, referring to the interest rate at which the new securities will trade on the day of the debt exchange.

Most of the Eurobonds, of which US$13 billion are outstanding, are trading at 37 to 42 cents in the dollar, according to Tradeweb data, still deeply distressed but having gained about five cents in the past month in anticipation of IMF loan approval.

“A timely completion of the external restructuring process similar to the DDE would be beneficial for bond prices,” the JPMorgan note said. “That said, we remain on the sidelines given the path ahead could remain tricky with regards to debt negotiations with both the official and commercial creditors.”

Ghana defaulted on most external debt late last year, after its already strained finances caved under the fallout from COVID-19 and Russia’s war in Ukraine.

It is aiming to restructure US$5.4 billion of official bilateral loans owed to China and Paris Club nations through the G20’s Common Framework process, plus US$14.6 billion of overseas commercial debt, including the bonds.

The IMF DSA “translates to a 40-50% haircut on external debt,” Goldman Sachs economist Bojosi Morule said in emailed comments.

“We found moderate upside to bond prices (when Eurobonds were trading in the 30s) at [Net Present Value] haircuts up to 60% at exit yields up to 14%… given the increase in the bond prices more recently, this implies less upside (though still positive) relative to our previous estimates,” she said.

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