Ghana’s government has launched another round of domestic debt restructuring, this time affecting domestic dollar bonds and cocoa bills issued by the state cocoa company, COCOBOD. This round of debt restructuring was first announced in a presentation made to investors back in April 2023. The objective is to eventually restructure GH¢123 billion in domestic debt.
This round of restructuring is more straightforward than the previous rounds that I covered here. There is no categorization of investors, everyone gets the same deal. Let us get straight into the details of the exchange.
Domestic Dollar Bonds
The domestic dollar bonds are government bonds that are USD denominated instead of GHS. The last issue was paying an interest rate of roughly 6%. The outstanding bonds are as follows:
$809 million is only 2% of public debt and 4.7% of domestic debt but government considers it important to reduce its interest payments and domestic dollar bond holders are not exempt. The government states that the exchange is voluntary, but given the experience of individual bondholders who opted out of the Domestic Debt Exchange (DDE), it is likely that dollar bond holders will fully participate in this exchange.
The outstanding bonds and any interest payable are to be rolled equally into two new bonds, one maturing in August 2027 and the other maturing in August 2028. The bond maturing in August 2027 will pay an interest rate of 2.75% payable semiannually starting from February 2024. The other bond will also pay an interest rate of 3.25% semiannually from February 2024.
The exchange was launched on July 14 and domestic dollar bondholders will be able to apply for the new bonds up to August 7. Settlement will be done on August 11, 2023.
Cocoa Bills
Cocoa Bills are 182-day debt instruments issued by COCOBOD to finance their operations. The state cocoa company has been in financial trouble for years due in part to high finance costs. In January 2023, the media reported that a cocoa bill that had matured was rolled over without prior notice to the investors. So it is no surprise that COCOBOD is seeking to restructure the debt. The arranger for the restructuring is CAL Bank and the trustee for the new bonds is Consolidated Bank of Ghana (CBG).
The outstanding cocoa bills are GH¢7.96 billion out of which only GH¢28.3 million are held by individual investors. The rest are held by institutional investors. The exchange was launched on July 14 and cocoa bill holders will be able to apply for the new bonds up to August 7. Settlement will be done on August 11, 2023.
Five new bonds are to be issued to replace all the outstanding cocoa bills. And the details of the new bonds are as follows.
| Maturity Date | Allocation | Coupon (Interest Rate) | Interest Payment | Settlement |
| August 2024 | 5% | 13% | Semi-annually starting February 2024 | One single payment on maturity date |
| August 2025 | 20% | 13% | Semi-annually starting February 2024 | One single payment on maturity date |
| August 2026 | 25% | 13% | Semi-annually starting February 2024 | One single payment on maturity date |
| August 2027 | 25% | 13% | Semi-annually starting February 2024 | One single payment on maturity date |
| August 2028 | 25% | 13% | Semi-annually starting February 2024 | One single payment on maturity date |
The interest rate of 13% is significantly lower than the average rate of 30% that cocoa bill holders were enjoying. This reduction is going to lead to banks having to significantly write down the value of their cocoa bills. It also means that interest income for banks is going to significantly reduce.
The debt exchange has become quite a burden for domestic investors who have already been hit by a significant loss in real returns due to decades’ high inflation and a sharp depreciation of the Ghana cedi against the US dollar. One can only hope that these rounds of losses investors are facing are going to play a crucial role in restoring activity on the domestic financial market.