Ghana, Zambia’s debt restructurings head in “diverging directions – Citi

Citi bank

Johannesburg — Debt restructuring programmes in Ghana and Zambia are going in “diverging directions” due to Zambia’s larger exposure to Chinese lenders and its weaker ability to cope with a large amount of debt, investment bank Citi said.

Ghana was likely to get an International Monetary Fund (IMF) board sign-off for a $3 billion rescue loan in the next few weeks, while Zambia’s restructuring had stalled, Citi’s analysts said in a note to clients.

Ghana defaulted on its external debts in December and has since sealed a domestic debt swap and requested a restructuring of its bilateral debts via the G20’s Common Framework vehicle.

Zambia meanwhile has been stuck in default since it became the first COVIDera African nation to do so in November 2020. Its finance minister has said it is pushing to finish the long-delayed Common Framework restructuring by end of March or shortly after.

“Our more positive view (on Ghana) is supported by a strong commitment by the IMF and Paris Club to achieve a quick breakthrough,” the Citi note said.

It estimated that Ghana’s international sovereign bonds would need an average coupon reduction of 30%-50% and five-year maturity extension, with no cut in the principal value, to cover the country’s forecasted $4.5 billion financing gap in the next three years.

“Assuming a 12.5% exit yield… suggests an average price uptick of 10 cents” on bond prices, the note said.

It said there was little upside to bond prices in Zambia now, even with a “conservative” estimate of a 25% principal haircut, 30% coupon cut, average maturity extension of six years and a three-year grace period.

Gov Wike