Restructuring cocoa bills: Local banks push for favourable terms

Local banks are pushing for better terms in the restructuring of cocoa bill holdings as government proposes to replace them with five new bonds.

Information from the market suggests that the new bonds come with a coupon rate of 12 percent – significantly lower than the previous average entry rate of 30 percent on the bills. However, the banks have expressed concern over the steep reduction in face value of the bills.

Government’s debt restructuring efforts also extend to negotiations with local pension funds to restructure their investment holdings in government securities, with a total value of approximately GH¢29billion. This move indicates government’s commitment to addressing debt challenges and improving debt sustainability.

The proposed terms for the new bonds offer a lower coupon rate and a significant reduction in face value, which has raised concerns among the banks. While the lower coupon rate may benefit investors in the long-run, the substantial reduction in face value could result in substantial losses for the banks. As a result, they are advocating for more favourable terms in restructuring the cocoa bills.

It is worth noting that government recently reached an agreement with local banks to restructure approximately GH¢15billion (US$1.35billion) of domestically issued USD bonds and cocoa bills. Under this agreement, the USD bonds will be converted into two-term loans with lower interest rates, while the cocoa bills will be transformed into a new bond with a 12 percent yield.

The new loans will have a maturity of five years starting from 2025.

To government, this agreement with local banks is seen as a positive step toward addressing the country’s debt challenges and improving debt sustainability, as government demonstrates commitment to finding solutions and working with official creditors to address the debt situation.

The submission of a memorandum of understanding for the domestic USD bonds to the Securities and Exchange Commission further reinforces the country’s commitment to tackling its debt issues.

However, the concerns raised by banks regarding the reduction in face value of the cocoa bills highlight challenges faced in the debt restructuring process. Finding a balance between reducing debt burdens and ensuring the financial stability of banks will be crucial for the restructuring efforts’ success.

As negotiations continue between government, banks and pension funds, it remains to be seen how terms of the debt restructuring will evolve. The outcome of these discussions will have a significant impact on Ghana’s financial landscape and ability to address its debt challenges effectively.

Government closed its Domestic Debt Exchange Programme (DDEP) for GHS-denominated notes and bonds issued by E.S.L.A. Plc. or Daakye Trust Plc. with over 80 percent participation of eligible bondholders. The programme – which was voluntary, sought to tackle the current economic crisis, bring back macroeconomic stability and guarantee sustainable growth.

Its conclusion was protracted, following five deadline extensions as various groups sought exemptions or improved terms to participate. Under the programme, government managed to restructure bonds to the tune of GH¢87.76billion.