Fitch assigns Ghana's new USD bonds 'CCC+' rating

Fitch Ratings has assigned a ‘CCC+’ rating to Ghana’s newly issued US dollar bonds, which were launched on October 9, 2024. Additionally, Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) has been upgraded from ‘CCC’ to ‘CCC+’. However, Ghana’s Long-Term Foreign-Currency (LTFC) IDR remains unchanged at ‘RD’ (Restricted Default). Fitch does not assign outlooks for countries rated ‘CCC+’ or lower.

In addition to these ratings, Fitch has affirmed the ‘CC’ rating on Ghana’s US dollar-denominated notes partially guaranteed by the International Development Association (IDA), due in October 2030, before withdrawing the rating. The withdrawal comes as a result of the notes being restructured and no longer existing in their original form.

Completion of Eurobond Exchange

Ghana has successfully completed a debt exchange involving 15 of its non-performing Eurobonds, including the IDA-guaranteed notes. The exchange was finalized after gaining consent from 98.58% of the outstanding bondholders, with over 92% of each bond series agreeing to the restructuring terms. This has resulted in the exchange of these 15 Eurobonds for five new bonds, which were distributed to eligible holders on October 10, 2024.

The ‘CCC+’ rating for these new bonds reflects an anticipated improvement in Ghana’s credit profile following its broader debt restructuring process. This outlook includes a reduction in debt levels supported by ongoing fiscal consolidation, though liquidity risks remain elevated due to the high proportion of revenue dedicated to interest payments.

Restructuring and Debt Relief

Under the debt restructuring, Ghana offered bondholders two options for the new bonds. The first option, known as the “disco” option, involved a 37% nominal haircut, with claims restructured into two step-up coupon amortizing notes, maturing in 2029 and 2035. The coupon rates for these bonds increase progressively, ranging from 5% to 6%.

The second option, the “par” option, did not involve a nominal haircut. Instead, claims were converted into a 1.5% amortizing note due in 2037. Both options included a zero-coupon amortizing note due in 2026 and another zero-coupon note due in 2030, aimed at addressing past-due interest payments. The restructuring did not feature any value-recovery instruments, with USD994.8 million of tenders opting for the par option, below the USD1.6 billion cap.

This debt exchange provides significant relief to Ghana, reducing its foreign currency (FC) debt stock by roughly 6% of the country’s estimated GDP for 2024. FC debt service payments will be reduced by approximately USD3.5 billion over the 2024–2026 period, with interest payments dropping by 1.3% of GDP in 2024, 0.9% in 2025, and 0.6% in 2026. These figures do not account for potential increases in interest rates on maturing bonds that will need to be rolled over.

Debt Decline and Economic Outlook

The restructuring, along with similar anticipated treatment for other FC commercial debt, could result in a total debt reduction of 7% of Ghana’s 2024 GDP. This, combined with expected strong medium-term growth and ongoing fiscal tightening, should help lower the central government’s debt from 77% of GDP in 2023 to 70% in 2024, with a further decline to 68% by 2025 and 2026.

Official Sector Treatment and Remaining Debt in Default

Ghana’s Eurobond restructuring aligns with a comparable level of debt relief anticipated from official creditors, although the exact terms of the June 2024 memorandum of understanding for the official sector have not been disclosed. This additional relief will further alleviate Ghana’s debt-service burden.

Despite progress, Ghana remains in default on some of its external commercial debt, leading Fitch to affirm the LTFC IDR at ‘RD’. The country is expected to complete its external debt restructuring by early 2025. Additionally, the covenants of the new Eurobond agreements include a most-favoured creditor clause, ensuring that future restructuring agreements with other creditors do not offer more favorable terms without equivalent consideration being offered to current noteholders.

Local Currency Rating Upgrade

Fitch’s upgrade of Ghana’s LTLC IDR to ‘CCC+’ reflects improved confidence in the reduced likelihood of further defaults on local currency debt. The successful restructuring of the Eurobonds has unlocked additional access to concessional international financing. As of October 4, 2024, Ghana and the International Monetary Fund (IMF) reached a staff-level agreement on the third review of Ghana’s extended credit facility, which is expected to release USD360 million upon approval by the IMF board.