3 times government extended its debt exchange programme and why

The only hurdle to the government of Ghana getting the $3 billion it is seeking from the International Monetary Fund appears to be the government's inability to prove to the Fund that its debts are sustainable.

To do this, the government has come up with the voluntary Domestic Debt Exchange Programme (DDEP) to deal with its domestic debts. It has also come up with some measures, including the country joining the Paris Club to deal with its international debts (to have the foreign debts delayed or forgiven).

With the DDEP, the government is seeking to restructure approximately GH¢137.3 billion of the domestic debts it accrued through bonds it issued, including the E.S.L.A. Plc and Daakye Trust Plc, and per the requirement of the IMF, 80 percent of the country’s total debts must be subject to this debt exchange programme.

However, the government has been struggling to get the needed stakeholders to sign up for the DDEP to meet the required standard and has extended the deadline for the programme several times.

This article looks at the different times the government has had to extend the deadline for participation in the DDEP and the new offers it made to bondholders.

First announcement of the DDEP programme

The Minister of Finance, Ken Ofori-Atta, in a 4-minute address on Sunday, December 4, 2022, announced a number of measures under the government's Domestic Debt Exchange (DDE) programme.

This announcement was in line with the government's debt sustainability analysis, as contained in the 2023 budget he presented to Parliament on November 24, and it gave entities up to December 30, 2022, to indicate their participation in the programme.

The minister laid out, among other things, the exchange of existing domestic bonds with four new ones, as well as their maturity dates and terms of coupon payments.

Under this initial offer, for bondholders with bonds maturing in 2023, the government promised four new bonds that were expected to mature in 2027, 2029, 2032, and 2037, and 0% interest in 2023, 5% interest in 2024, and 10% interest in 2025, which will continue till the maturity of your bond.

Initially, the government stated that the programme would affect securities dealers and funds, private banks and investment companies, insurance schemes, pension funds, and non-resident investors, but not individual bondholders.

First extension from December 30, 2022, to January 16, 2023

After fierce resistance from trade unions about the inclusion of pension funds in the DDEP and the lack of enough voluntary participation, the government announced the extension of the voluntary participation in the programme to January 16 with the following modifications:

• Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;

• Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;

• Modifying the Exchange Consideration Ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different from other Eligible Bonds;

• Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of eligible bonds; and

• Expanding the types of investors that can participate in the exchange to now include individual investors

Second deadline extension from January 16, 2023 to January 31, 2023:

The government on Monday, January 16, extended the deadline for DDEP to Tuesday, January 31, 2023, after resistance by some of the stakeholders involved in the programme, particularly individual investors whom the government promised not to include in the programme.

A press release on the development, issued by the Public Relations Unit of the Finance Ministry, announced some modifications by the government on the invitation to the exchange, including;

Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;

Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;

Modifying the exchange consideration ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different than for other Eligible Bonds;

Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of Eligible Bonds; and

Expanding the types of investors that can participate in the exchange to now include individual investors.

Extension of deadline from January 31, 2023 to February 14, 2023

The government had to once again extend the deadline for voluntary participation in the DDEP to February 14, 2023, from January 31, 2023, citing its latest offer to individual bondholders.

Even though this time around a lot of groups, including banks, have agreed to participate in the programme, the government still wants to include individual bondholders.

The latest offer includes the exchange of instruments with a maximum maturity of 5 years instead of 15 years and a 10% coupon rate to individual bondholders below the age of 59 to encourage them to participate in the DDEP.

Additionally, all retirees (including those retiring in 2023) will be offered instruments with a maximum maturity of 5 years instead of 15 years and a 15% coupon rate.

The current deal has, however, been rejected by individual bondholders. The individual bondholders, who are pensioners, picketed at the Ministry of Finance on Monday, February 6, 2023, to demand that the government exclude them from the DDEP.

IB/WA