COCOBOD to restructure GH¢7.93b debt

 The Ghana Cocoa Board (COCOBOD) has, today, launched a debt securities exchange programme to restructure debts totalling GH¢7.93 billion.

Under the programme, COCOBOD is inviting holders of its short-term debt securities (the Cocoa Bills) to voluntarily offer to exchange their Cocoa Bills for longer-term debt securities with averagely lower coupon rates.

Holders of the Cocoa Bills whose offers are accepted by COCOBOD will receive five new bonds which would mature in 2024, 2025, 2026, 2027 and 2028. The new bonds will come at a coupon rate of 13 per cent.

The successful completion of this aspect of the domestic debt exchange programme is very crucial to the country’s quest to restore debt sustainability which is a critical component of the IMF programme.

As per the IMF's methodology and as explained in their Staff Report published on May 17, 2023, Cocoa bills are included in the public debt perimeter considering the risk and contingent liability on Government debt profile. 

The IMF/WB debt sustainability analysis has demonstrated unequivocally that Ghana is faced with a significant financing gap over the coming years and that the country's public debt (including COCOBOD's cocoa bills) is unsustainable.

The Chief Executive officer of COCOBOD, Joseph Boahen Aidoo, in a letter, said the objective of the Cocoa Bills exchange was to reduce the excessive burden created by the short-term cocoa bills and put COCOBOD on the path of financial sustainability in line with targets defined by the IMF Staff agreement.

He said to alleviate the debt burden of COCOBOD in the most transparent, efficient and expedited manner, this debt exchange programme was necessary. 

In this context, the least painful set of restructuring efforts to be borne by the domestic financial market is sought. 

“In particular, the Invitation to Exchange does not embed any principal haircut on Eligible Bills. It involves an exchange for new COCOBOD bonds with a 13 per cent coupon and longer average maturity,” he stated.

He said regrettably, COCOBOD's financial challenges brought on by the low cocoa prices on the world market in the last few years have been exacerbated by the onset of COVID-19 and its consequential shut down of global economies. 

The CEO said that heavily compromised COCOBOD's ability to fully redeem the cocoa bills as and when they matured, leading to rollovers.

“This exchange is therefore intended to give COCOBOD the ability to redeem the new bonds as and when they mature,” he said. 

Domestic debt exchange

The government in December 2022 announced a Domestic Debt Exchange Programme (DDEP) which was one of the conditions required to unlock the US$3 billion IMF programme.

The DDEP saw the government swap a total of GH¢82 billion of old bonds for 12 new ones at a reduced coupon rate and longer tenor.

The government has however indicated in recent times that the domestic debt restructuring was still not yet over as it seeks to restructure cocoa bills and US dollar denominated bonds.

At the end of 2022, the country’s total domestic debt was around GH¢259 billion and so far the government has been able to restructure GH¢82 billion, which means that over 50 per cent of the domestic debt is yet to be restructured.

Dollar bonds 

The Ministry of Finance last week announced the commencement of its US dollar bonds to restructure debts totalling US$809 million.

A draft memorandum of the invitation shows that the government intends to swap two dollar denominated bonds which are expected to mature in November 2023 and November 2026, respectively with new bonds that would mature in 2027 and 2028.

The new bonds will also come with a reduced coupon rate of 2.75 per cent and 3.25 per cent. This compares to the 4.75 per cent and 6 per cent offered for the old bonds.

An exchange memorandum dated July 14 noted that the invitation to exchange would not embed any principal haircut on eligible bonds.

It also pointed out that the Republic, in its sole discretion, may settle the eligible bonds in full or in part and that the eligible holders’ subscription to receive the new Bonds is voluntary.

A release issued by the Ministry of Finance indicated that the successful completion of this domestic debt exchange would contribute to unlocking the support of the international community and would allow Ghana to achieve its debt targets.

External debt

On the external side, following the formation of the Creditor Committee, co-chaired by China and France on May 12, the government has begun negotiations with its external bilateral creditors to restructure debts totalling $5.4 billion.

It is also in negotiations with its commercial creditors to restructure its $14-billion debt.

The government is targeting an external debt relief of $10.5 billion between 2023-2026 through the external restructuring.

Under the IMF programme, the government is seeking to reduce its total public debt-to-GDP ratio to below 55 per cent.

A bulk of the fiscal adjustments required to achieve this target is expected to come from debt restructuring.

The Ministry of Finance has since the beginning of the debt exchange exercise noted that the alternative to the debt exchange would be a far worse economic crisis, with protracted closure from international markets and further domestic economic instability both for the real economy and the financial sector.