Ghana’s sovereign dollar bonds experienced a sharp decline on Tuesday following the government’s proposal of a 30-40 percent haircut on principal investments for bondholders.
In financial terms, a “haircut” signifies a financial loss incurred by investors or creditors when an asset used as collateral for a loan is valued below its actual market worth.
As Ghanaian authorities presented the debt restructuring plan to bond investors, some bonds hit their lowest levels in three months.
Notably, the 2061 bond issue saw a significant drop of up to 2.9 cents in the dollar, sliding to 38.9 cents.
This information comes from a Reuters report, which revealed that although bonds made a partial recovery, they still remained down by 1.5 cents to 2.2 cents in the dollar.
This decline occurs at a time when Ghana grapples with escalating domestic debt costs, which have prompted the country’s authorities to engage in debt restructuring discussions with bilateral and commercial creditors.
The report indicated that the Ghanaian government aims to restructure approximately $20 billion of its total external debt, which stood at around $30 billion by the end of 2022.
According to Ghana’s Finance Minister, Ken Ofori-Atta, bonds with coupons of no more than 5 percent and a final maturity of not more than 20 years will also be issued as part of the restructuring effort.
Ofori-Atta informed investors that these proposed bonds are integral to the debt overhaul for Ghana’s $13 billion outstanding international bonds.
“We are now intensifying efforts with international bondholders, and we expect significant progress in the coming week,” he stated. ”
As a nation, we also want to show the country’s commitment to burden-sharing in debt restructuring.”
Ofori-Atta expressed his hope to conclude these discussions before the end of the year, underlining the government’s determination to address its debt situation.