Swift conclusion of Ghana’s debt restructuring would benefit Eurobond prices – JPMorgan Analysis reveals

Analysts have stated that a swift resolution to Ghana's external debt restructuring would benefit international bond prices, but caution that the negotiations may be challenging and bondholders could potentially face a write-down of up to 50%, following Ghana's acquisition of a $3 billion IMF rescue loan.

According to the International Monetary Fund's Debt Sustainability Analysis released on Wednesday, Ghana is seeking $10.5 billion of debt service relief for the period between 2023 and 2026, as it undertakes the restructuring of two-thirds of its $30 billion external debts.

This provides some insight into the potential impact on international bondholders.

JPMorgan analysts, in a note to clients, highlighted that the current prices of Ghana's Eurobonds imply an “exit yield” of 14%.

However, a swift restructuring could potentially improve it to 12%. The “exit yield” refers to the interest rate at which the new securities will trade on the day of the debt exchange.

Based on Tradeweb data, most of Ghana's Eurobonds, with $13 billion outstanding, are trading between 37 to 42 cents on the dollar.

Although still significantly distressed, these bonds have gained about five cents in the past month in anticipation of the approval of the IMF loan.

JPMorgan's note stated, “A timely completion of the external restructuring process similar to the DDE would be beneficial for bond prices. 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 faced a default on most external debt in late 2022 due to the strain on its finances from the impact of COVID-19 and the conflict in Ukraine.

The country aims to restructure $5.4 billion of official bilateral loans owed to China and Paris Club nations through the G20's Common Framework process, along with $14.6 billion of overseas commercial debt, including bonds.

Goldman Sachs economist Bojosi Morule commented via email that the IMF DSA suggests a “40-50% haircut on external debt.”

She also mentioned that their analysis showed a moderate upside to bond prices when Eurobonds were trading in the 30s, with Net Present Value (NPV) haircuts of up to 60% and exit yields of up to 14%.

However, given the recent increase in bond prices, she noted that the upside would likely be less relative to their previous estimates, although still positive.