S&P Global Ratings has lowered its long- and short-term foreign currency sovereign issuer credit ratings on Ghana to ‘SD/SD’ from ‘CC/C’. There is no outlook on ‘SD’ ratings.
It also affirmed its ‘CC’ long-term foreign currency issue-level ratings to reflect its understanding that, as of Dec. 20, 2022, Ghana remained current on the servicing of all its individual Eurobonds and commercial term loans.
As a sovereign rating (as defined in EU CRA Regulation 1060/2009 “EU CRA Regulation”), the ratings on Ghana are subject to certain publication restrictions set out in article 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see “Calendar Of 2022 EMEA Sovereign, Regional, And Local Government Rating Publication Dates: Midyear Update,” published June 23, 2022, on RatingsDirect).
Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the Dec. 19 announcement made by Ghana’s Ministry of Finance that it is suspending all debt service payments on Eurobonds and commercial term loans.
Outlook
There is no outlook on the ‘SD’ sovereign credit issuer ratings. S&P Global Ratings said in a press release: “We could raise the issuer credit ratings from ‘SD’ upon the conclusion of upcoming commercial debt restructurings, which we characterize as distressed debt exchanges based on our methodology.
Such restructurings could entail an extension of maturities that will not be compensated for by the issuer or a reduction in the face value of debt”.
On Dec. 4, 2022, Ghana’s Ministry of Finance initiated a transaction that we classify as a distressed exchange offer on the majority of domestic local currency debt instruments. We expect the government could make an exchange offer for cross-border debt soon.
“We expect to lower our ratings on Ghana’s foreign currency issues to ‘D’ (default) if the government fails to make the next scheduled coupon payment on its commercial foreign currency debt, which we understand comes due on Jan. 18, 2023, unless authorities were to launch a distressed exchange offer before that date. Under the latter scenario, we would lower the foreign currency issue ratings to ‘D’ on the date of the opening of the exchange offer”.
Rationale
S&P Global Ratings explained that it lowered our foreign currency sovereign credit rating on Ghana following the government’s announcement on Dec. 19 that it will cease to make principal and interest payments on foreign currency foreign-law debt.
“We view the moratorium as a selective default under our criteria. Our understanding is that Ghana’s authorities are in the process of proposing a restructuring of foreign currency commercial debt to its creditors.
The suspension of foreign currency debt servicing comes on the back of the government’s initiation of a transaction on Dec. 4 that we classify as a distressed exchange offer on the majority of Ghana’s domestic local currency debt instruments”.
Its credit ratings on Ghana reflect very low net reserves, a volatile exchange rate, high inflation, and the weakened economy. They also incorporate the deterioration of the sovereign’s financial environment and strained investor confidence.
These factors have all limited the sovereign’s capacity to refinance its maturing debt, exacerbated by Ghana’s shallow local financial markets, limited domestic savings, and the closure of external bond markets, all against the backdrop of rising global interest rates.
The imperative of preserving limited remaining foreign currency reserves and lowering debt to GDP should underpin the configuration of the forthcoming proposal on commercially foreign-law debt. The government has extended the expiration date on its domestic debt exchange offer to Dec. 30.
On Dec. 12, the government reached a staff-level agreement with the International Monetary Fund (IMF) on a $3 billion extended credit facility (ECF) that aims to restore macroeconomic stability and debt sustainability. We understand that the approval of the ECF by the IMF Board depends upon the completion of the proposed domestic debt operation, with a revised closing date of Dec. 30.
The S&P Global Ratings believes that–subject to high levels of participation, legal clarity, and timely execution–the restructuring of domestic and foreign debt could reduce pressure on foreign exchange reserves, help stabilize public finances, and, in tandem with support from the IMF, abate pressure on the exchange rate.
As a consequence, upon completion of the local currency debt exchange, we would likely raise our local currency long-term rating on Ghana to the ‘CCC’ category or possibly higher, at which point we would consider the local currency default to be cured, as per our criteria.
“We would take a similar approach upon the completion of any foreign currency distressed exchange, although we believe such a transaction might be complicated by legal risks associated with restructuring foreign-law debt. Our post-restructuring ratings tend to be in the ‘CCC’ or ‘B’ categories”, the press release said.
Key Statistics
For the most recent data tables on Ghana, see “Ghana Downgraded To ‘CCC+/C’ From ‘B-/B’ On Intensifying Financing And External Pressures; Outlook Negative,” published Aug. 5, 2022.