Fitch Ratings downgrades Ghana’s creditworthiness to ‘Restricted Default’

International rating agency, Fitch, has further downgraded Ghana’s Long-Term creditworthiness to Restricted Default (RD) from ‘C’.
Local-currency domestic bond issue ratings have likewise been lowered 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.

According to Fitch, a principle payment of GHC4.2 trillion was due on February 6, 2023. Authorities said that eligible holders owning this bond will not receive a final interest payment and a final principal payment, regardless of whether an eligible holder has tendered or not, in the second modified and restated exchange memorandum published on February 7.

The Finance Ministry declared in a news release on February 14, 2023, that coupon payments and maturing principal will be honored “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’.

Following the government’s statement that payments on a portion of its external debt would be suspended, Fitch downgraded the Long-Term Foreign Currency Issuer Default Ratings (IDR) to “C” from “CC” on December 21, 2022. A restructuring of Ghana’s external debt under the G20 Common Framework was then requested by official creditors.

The January 18, 2023, due date for a Eurobond coupon payment has not been met. Following the expiration of the grace period for this coupon payment, which expires on February 17, 2023, Fitch will downgrade the LT FC IDR from ‘C’ to ‘RD