On Friday, February 3, 2023 the Ministry of Finance released an amended memo presenting what would be the third version of its Domestic Debt Exchange (DDE) plan. The deadline for signing up to this new proposal is February 7 and the settlement date for the bonds is February 14. If it is of any interest to you, you can read the first proposal and the second proposal although this new memo makes those old terms obsolete. As usual my objective is to simplify the proposal and to do so in as few words as possible. Therefore, if your interest is in understanding Ghana’s fiscal problems and why a restructuring is necessary in the first place, you should read my post from September 2022. In today’s post we will jump straight to the terms of the new DDE memo and what it means for both individual and institutional investors.

The most significant difference between this proposal and the last two is that bondholders are placed in different categories. Bondholders must therefore specify which category they fall in when they are submitting their forms. The categories are as follows.

1. Category A Bondholder. This includes all investors in a collective investment scheme (CIS) such as a mutual fund or a unit trust. It also includes all individual bondholders below the age of 59. If you fall in this category, your current bonds will be converted to two bonds – one maturing in 2027 and another maturing in 2028 – in a 50:50 ratio. These bonds will pay 10% interest per year. You will therefore receive 50% of your principal in 2027 and another 50% in 2028.
2. Category B Bondholder. This includes all individual bondholders aged 59 or older. If you fall in this category, your current bonds will be converted to two bonds – one maturing in 2027 and another maturing in 2028 – in a 50:50 ratio. These bonds will pay 15% interest per year. You will therefore receive 50% of your principal in 2027 and another 50% in 2028.
3. General Category Bondholder. Any other investor who does not qualify for Category A or Category B fits into the general category. This category is obviously meant for institutions. The terms of payment for investors in this category is quite complex although I will try to break it down as simply as possible. If you are an individual investor, this segment is one you may not need to bother about. You can skip directly to the Conclusion.

General Category (Institutional) Bondholder Terms

Just like in the proposal before this new one, the ministry segregates the structure of the new bonds depending on whether they were set to mature in 2023 or after 2023. If they were set to mature in 2023, the government will issue 7 new bonds in the following proportion.

Maturity Date	February 2027	February 2028	February 2029	February 2030	February 2031	February 2032	February 2033
Proportion	15%	15%	14%	14%	14%	14%	14%

If they are set to mature after 2023, bonds will be issued in the following proportion.

Maturity Date	2027	2028	2029	2030	2031	2032	2033	2034	2035	2036	2037	2038
Proportion	9%	9%	9%	9%	8%	8%	8%	8%	8%	8%	8%	8%

The payment of interest for the General Category bondholders will be in two forms – a cash interest payment and a payment-in-kind (PIK) interest payment. The PIK interest will consist of increasing the principal sum of the bond by a specific proportion in lieu of an interest payment. So let’s say a bond has a face value of GH¢1,000.00 and is paying a cash interest of 5% and a PIK interest of 3%. What that means is that you will receive GH¢50 in cash and then the face value of the bond will be increased to GH¢1,030.00. Essentially the sum which you will receive upon maturity is being increased as a reward for your interest not being paid in cash. The period for which a mixture of cash interest and PIK interest will be used as compensation is February 2023 – February 2025. After that period only cash interest will be paid. Below is my best attempt to present the complicated payment arrangement in one table.

If you are an institution looking for more explanation on this, you can send me an e-mail.

Conclusion

By far the biggest concern that readers have expressed has to do with what would happen if they do not sign up. In a press release issued by the MoF on January 31, the ministry affirmed that “all individual bondholders are free not to participate.” However, in the latest release, the ministry indicates that the republic will not pay principal or interest on any bond maturing before February 14 2023. It is however unclear whether this means that for those who fail to participate, payments will be made to them after the settlement date of the new bonds have passed. I believe the individual bondholders lobby will seek clarification on this and I will update you if they do.

The release of this memo on a Friday evening does not give investors adequate time to read, understand and fill out the forms before the February 7 deadline. I would therefore suggest that you reach out to your broker or fund manager as soon as possible to get guidance on how to complete the forms if you choose to participate.

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