Fitch downgrades Long-Term Local-Currency to RD

Fitch Ratings has downgraded the nation’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to restricted default (RD) – from ‘CCC’ due to missed payments on some local-currency-denominated bonds issued prior to the domestic debt exchange programme (DDEP).

Last month, the rating agency upgraded Ghana’s LTLC IDR to ‘CCC’ from ‘RD’ on account of the completion of the local debt restructuring programme effective February 21, 2023.

However, the reversal reflects missed payments on bonds that were not tendered or held by ineligible entities for participating in the domestic debt exchange, the rating agency noted.

“The downgrade of Ghana’s LTLC IDR to RD reflects the missed payments on some local-currency-denominated bonds that were not tendered or that are held by entities not eligible for participating in the domestic debt exchange,” Fitch said in a note on the subject.

This comes after the government announced it was resuming payments on local-currency bonds issued prior to the domestic debt exchange on 13th March, 2023 to bondholders who were either ineligible or did not participate in the domestic debt exchange. However, only coupon payments on the two-year note that matured on 20th February, 2023 and the 20-year note maturing in 2039 had been made, with the principal payment on the former note still outstanding.

The authorities have acknowledged that 35 payments, whether principal or coupon, were due on the outstanding ‘old bonds’ between 20th January, 2023 and 20th April, 2023. Following a meeting with representatives of individual bondholders and pension funds, the government announced having reached an agreement on a pathway toward the settlement of the outstanding debt obligations by 28th April, 2023, but Fitch has voiced concerns over whether missed payments will be settled to all categories of holders of ‘old bonds’ or only to specific categories.

Furthermore, Fitch has downgraded to ‘CC’ from ‘CCC’ the issue rating of five local-currency bonds issued prior to the debt exchange and has subsequently withdrawn the rating on these securities due to the limited information and uncertainty regarding the timely servicing of the securities issued before the domestic debt exchange.

Fitch, meanwhile, has affirmed the ‘CCC’ issue rating of local-currency bonds issued on the completion date of the domestic debt exchange programme, with the first coupon payments on these bonds due in August 2023.

Despite a substantial redemption reprofiling and significantly lowered interest rates, Fitch estimates that the present value of public debt-to-GDP has been reduced by only 1percent to slightly above 100 percent of GDP (in present value terms) using the standard 5 percent discount rates that apply in the IMF/World Bank debt sustainability framework for low-income countries.

Fitch also noted that IMF support for Ghana will likely depend on the government’s ability to show a path toward bringing the present value of debt to 55 percent of GDP over the forecast horizon on the basis of the IMF/World Bank debt sustainability analysis and the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework of external debt restructuring that authorities have requested.

“Fitch does not expect the provision of financing assurances, which will pave the way for an IMF Board approval of the ECF arrangement and for a new debt sustainability analysis to be published, before the end of 2Q23,” the rating agency added.

The LTFC IDR was downgraded by Fitch to ‘RD’ from ‘C’ on 21st February, 2023 following the expiration of the grace period for a missed Eurobond coupon payment, while the issue rating on Ghana’s US dollar-denominated notes due October 2030 was downgraded to ‘CC’ from ‘B-‘ on 21st December, 2022.

Once Fitch receives satisfactory confirmation that Ghana has settled all the missed payments, it said it will assign Ghana’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local currency debt. Evidence that the partially-guaranteed notes will be excluded from the external debt restructuring could lead to an upgrade of the issue rating on the partially guaranteed notes.