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HomeWorldIMF disburses $600 mln credit facility to Ghana as JPMorgan says debt...

IMF disburses $600 mln credit facility to Ghana as JPMorgan says debt deal favours bondholders

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Ghana’s Finance Minister Ken Ofori-Atta said on Friday that the first $600 million tranche of a $3 billion, three-year extended credit facility has been received.

The funds will be used for budget support and help bring down inflation, Ofori-Atta said on Twitter.

The International Monetary Fund’s (IMF) executive board on Wednesday approved the $3 billion, three-year rescue loan, paving a potential path out of Ghana’s worst economic crisis in a generation.

Meanwhile, Analysts said the swift conclusion to Ghana’s external debt restructuring would benefit its international bond prices but the talks may be tricky and holders could face a write-down of up to 50 percent.

Ghana is aiming for $10.5 billion of debt service relief for 2023-2026 as it restructures two-thirds of its $30 billion external debts, according to the IMF’s Debt Sustainability Analysis published on Wednesday, giving more hints on what sort of hit international bondholders might face.

JPMorgan calculated that current prices for Ghana’s Eurobonds imply a 14 percent “exit yield” but a quick restructuring could improve it to 12 percent, JPMorgan analysts said in a note to clients, referring to the interest rate at which the new securities will trade on the day of the debt exchange.

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Most of the Eurobonds, of which $13 billion are outstanding, are trading at 37 to 42 cents in the dollar, according to Tradeweb data, still deeply distressed but having gained about five cents in the past month in anticipation of IMF loan approval.

“A timely completion of the external restructuring process similar to the DDE would be beneficial for bond prices,” the JPMorgan note said. “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 defaulted on most external debt late last year after its already strained finances caved under the fallout from COVID-19 and Russia’s war in Ukraine.

It is aiming to restructure $5.4 billion of official bilateral loans owed to China and Paris Club nations through the G20’s Common Framework process, plus $14.6 billion of overseas commercial debt, including the bonds.

The IMF DSA “translates to a 40-50 percent haircut on external debt,” Goldman Sachs economist Bojosi Morule said in emailed comments.

“We found moderate upside to bond prices (when Eurobonds were trading in the 30s) at [Net Present Value] haircuts up to 60 percent at exit yields up to 14 percent… given the increase in the bond prices more recently, this implies less upside (though still positive) relative to our previous estimates,” she said.

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