Ghana and Zambia’s debt restructurings going in ‘diverging directions’ – Citi

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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 on Friday.

Ghana was likely to get an International Monetary Fund (IMF) board sign-off for a $3bn 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 Covid-era 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 percent-50 percent and five-year maturity extension, with no cut in the principal value, to cover the country’s forecasted $4.5bn financing gap in the next three years.

‘Assuming a 12.5 percent 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 percent principal haircut, 30 percent coupon cut, average maturity extension of six years and a three-year grace period.

‘The Zambian restructuring will require high-level compromises at multilateral (IMF) and bilateral (China vs G7) level.’