On December 4, Ghana’s finance minister announced a Domestic Debt Exchange Programme which sought to exchange government’s existing domestic bonds for 4 new bonds maturing in 2027, 2029, 2032 and 2037. I explained the details of the debt exchange in a post back then, but the government has since updated the proposal in an Amended and Restated Memorandum of Exchange published by the Ghana News Agency.
In order to keep this post simple and short, I would recommend that you read my past post on restructuring if you want to understand what it is or how Ghana got into this situation in the first place. In this post I will go straight to explaining the details of the memorandum of exchange and how it differs from the previous one.
Possibly the most striking difference between this programme and the previous one is the inclusion of individual domestic bondholders. This is hoped by the finance ministry to bring in 80% of the total outstanding bonds (valued at about GHS132 billion). The new arrangement also segregates the maturity periods between bonds maturing in 2023 and those maturing after that date.
The settlement of the principal for the bonds which were originally scheduled to mature in 2023 are as follows:
| Year | Principal Repayment |
| 2027 | 15% |
| 2028 | 15% |
| 2029 | 14% |
| 2030 | 14% |
| 2031 | 14% |
| 2032 | 14% |
| 2033 | 14% |
What this means is that if you have a bond with a face value (principal) of GHS100,000.00 maturing in 2023, you will now receive GHS15,000.00 in 2027, GHS15,000.00 in 2028, GHS14,000.00 in 2029 and GHS14,000.00 each year from then until 2033. Note that this is the repayment of the principal and not interest. We will get to that later. But do note that for people who exchange bonds maturing in 2023, they will receive a cash tender fee equivalent to 2% of the principal of their bond.
Before we get to the interest to be paid, we need to discuss the settlement of the principal of bonds maturing after 2023. That’s indicated in the table below.
| Year | Principal Repayment |
| 2027 | 9% |
| 2028 | 9% |
| 2029 | 9% |
| 2030 | 9% |
| 2031 | 8% |
| 2032 | 8% |
| 2033 | 8% |
| 2034 | 8% |
| 2035 | 8% |
| 2036 | 8% |
| 2037 | 8% |
| 2038 | 8% |
So if you have a bond with a GHS100,000.00 face value maturing anytime from 2024 to 2039, you will exchange it for these 12 bonds in the proportion of GHS9,000.00 for each of the bonds maturing between 2027 and 2030. And then GHS8,000.00 per bond for each of the bonds maturing between 2031 and 2038. In simple terms, you’re receiving your initial GHS100,000.00 which was due to mature anytime from 2024 to 2039 in these new proportions.
Now these new payment terms offer more liquidity than the 17% in 2027, 17% in 2029, 25% in 2032 and 41% in 2037 initial offer. But let’s take a look at something that is likely to be the most contentious for the bondholders – the rate of interest. The new exchange plan is to pay no interest in 2023 and then to pay 5% interest in 2024 on all the bonds. After that the interest rates paid on each bond starts to diverge based on their maturity date. I have summarized the interest paid on each bond in the table below.
| Bond Maturity Date | Period of Interest paid | Interest Rate |
| 2027 | 2025-2027 | 9.00% |
| 2028 | 2025-2028 | 9.15% |
| 2029 | 2025-2029 | 9.30% |
| 2030 | 2025-2030 | 9.45% |
| 2031 | 2025-2031 | 9.60% |
| 2032 | 2025-2032 | 9.75% |
| 2033 | 2025-2033 | 9.90% |
| 2034 | 2025-2034 | 10.05% |
| 2035 | 2025-2035 | 10.20% |
| 2036 | 2025-2036 | 10.35% |
| 2037 | 2025-2037 | 10.50% |
| 2038 | 2025-2038 | 10.65% |
As you can see, this variety in interest is also a distinguishing factor from the original exchange plan. However, for bonds which are currently paying between 17% to 25%, one can see that these new proposed rates represent a loss in both absolute and NPV terms to investors. In order to entice bondholders to sign up for the new exchange, the government intends to waive immunity in Ghanaian courts for any issue relating to the new bonds. Also, it intends to introduce collective action clauses which would require the consent of 75% of bondholders to revise the terms of the new bonds.
One significant thing is that with the issue of these new bonds, activity on the Ghana Fixed Income Market will pick up again to allow some much needed liquidity to flow to embattled fund managers. It is clear that this liquidity will not be without losses as the new bonds will require some revaluation that will inevitably reduce the value of clients’ balances with fund managers. (See my post on the mark-to-market valuation).
The deadline for signing up for the new bonds is January 16 and bondholders are likely to be fervently meeting and planning on how to act on this new exchange plan. With almost everybody resuming work on Tuesday January 10, you can imagine it’s going to be one of the busiest weeks in Ghana finance history. And CediTalk will be here to provide analysis on the most critical developments.
Happy New Year!
Thanks Jerome for this piece.
Are you saying, bond holder cannot legally challenge the conversion of the bonds, seeing as it is that, this whole thing is contractual in nature, and a party in a contract cannot vary the term or terms of a contract without the express agreement of other parties or party.
Hello Sebastian, thanks for reading. You’d need some legal advice on this issue because my understanding is that it’s supposed to be voluntary. The issue for determination in my opinion is whether government can stop servicing payments on the bonds of investors who do not participate in the exchange. That would be a matter for lawyers and the courts to take up
Hello Jerome, great piece as always. However, could you explain this statement from the article. I don’t quite understand it. thanks
” In order to entice bondholders to sign up for the new exchange, the government intends to waive immunity in Ghanaian courts for any issue relating to the new bonds. “
Hello Nana Yaw,
My understanding is that government will subject itself to any ruling of the courts if it should fail to honor the terms of the new bonds.
thanks for the clarification, Jerome, further clarification. Does this mean the situation is otherwise for current or normal bonds? Is it the norm for Government to have court immunity on bonds ?
Very good question Nana Yaw. I think a lawyer would be best placed to answer those questions as I am not too clear on the issue
yes please thank you. can’t say this enough but great work as always.
Much appreciated!!
So what happens if you don’t sign on this debt exchange?
At this point I think only the government can tell us what they will do
What a great piece of article! JK you’ve explained it better.