Pan-African banking group Ecobank has more than doubled its impairment losses on Ghana’s distressed Eurobonds to $183 million, underscoring the extend of risks that African lenders are facing in their investments in sovereign bonds.
The Lome-based lender says it also excluded about $39 million in interest income earned on the $13 billion Ghanaian Eurobonds from its 2023 financial statements, owing to the ongoing and yet-to-be-concluded restructuring discussions with commercial bondholders.
The latest impairment losses translate into a 144 percent increase from $75 million posted in 2022.
“As of year end 2023, the total impairment charges on Government of Ghana Eurobonds are estimated at $183 million, a significant rise from $75 million in year-end 2022,” the lender says in its audited financial statement for 2023.
“Additionally, $26 million of modification losses were incurred on the GoG debt net of impairment charge releases due to the final settlement of the old bonds for the new bonds in February under the Domestic Debt Exchange Programme.
Ecobank has operations in 35 African countries, including Kenya, Burundi, the Democratic Republic of Congo, Ethiopia, Ghana and Côte d’Ivoire.
Global rating agency Moody’s Investor Service has previously cautioned banks against excessive lending to governments, saying their credit profiles risk being downgraded in tandem with those of governments facing liquidity pressures.
In March, Zambia reached an agreement with its creditors to restructure $3.5 billion Eurobonds, coming as a sigh of relief to Lusaka, which is battling a prolonged debt crisis.
As part of the deal, bondholders agreed to extend payment dates, which allows Lusaka to continue receiving funds under a $1.3 billion International Monetary Fund (IMF) programme.
Zambia became the first African country to default on its debt repayments during the Covid-19 era in 2020.
In December 2023, Ethiopia failed to make a $33 million coupon payment on its international government bond.
Reuters reported that Ghana’s international bondholders had entered into non-disclosure agreements with the government in March this year, marking the first step towards the start of formal talks to restructure over $13 billion of the international bonds.
The West African country is seeking debt relief after defaulting on most of its external debt as the world’s second-largest cocoa producer grappled with its worst economic crisis in a generation.
Ghana, Zambia and Ethiopia have opted for debt restructuring.
Ghana was aiming for a simple restructuring to exchange old bonds with new notes. The country aims to reduce $10.5 billion from its external debt repayments and interest costs that were due from 2023 to 2026 amid an IMF $3 billion reform programme.
In February 2023, Ghana missed on a $40.6 million coupon payment on its $1 billion 2026 Eurobond as part of the suspension of payments on selected external debt that the government announced in December 2022.
In an investor presentation in October, the government said it aimed for a haircut of 30 percent to 40 percent, sending its bonds sharply lower at the time.
Ghana has 15 Eurobonds, with maturity dates from 2023 to 2061.
Africa’s nearly two-year break from the international capital markets ended with Côte d’Ivoire’s successful Eurobond issuance in January 2024, followed quickly by Benin and Kenya in February, capitalising on the renewed global appetite for African debt.
These fresh Eurobonds by Kenya ($1.5 billion), Côte d’Ivoire ($2.6 billion) and Benin ($750 million) which were used issued to repay part of the countries’ maturing Eurobonds, compounding their debt burdens.
According to Afronomicslaw and African International Economic Law Network, the heavy indebtedness and the lack of a comprehensive system for restructuring has prompted African countries to seek fresh borrowing options from international financial markets to avoid default.
“This largely explains why Eurobonds and buybacks have grown in popularity, as these governments seek liquidity to meet their maturing Eurobond obligations on which they had only been paying interest,” it says.
African countries returned to the Eurobond markets in 2024 at a time of high interest rates, compared with 2020-2021. For instance, Kenya issued a bond at 10.4 percent yield to maturity, significantly above the 6.9 percent yield at issuance of its bond due this year, allowing Nairobi to clear most of its immediate debt and push back repayments by seven years.
Similarly, Côte d’Ivoire faced its highest borrowing cost in a decade with a dollar-denominated Eurobond.
Cote d’Ivoire raised $2.6 billion through two bonds with tenures of eight and 13 years respectively.
The debt instruments carried respective interest rates of 6.3 percent and 6.85 percent for the eight-year bond and 13-year bond respectively.
The stock of African Eurobonds reached $140 billion in 2021 and between 2007 and 2020, 21 African countries accessed international debt markets — many for the first time — with the instrument of choice being Eurobonds, according to the IMF.
The IMF says significant external debt repayments by African countries are looming this year and next year including $5.9 billion on Eurobonds in 2024 increasing to $6.2 billion in 2025, along with significant bank loan repayments — syndicated and bilateral — over the next two years.
The IMF Regional Economic Outlook for Sub-Saharan Africa (April 2024), says the increasing bank-sovereign link could pose financial stability risks in some countries as a result of issues like maturity mismatches, asset concentration, and illiquidity.
African countries considered to be in debt distress and at high risk of such distress are Zambia, DRC, Mozambique and Zimbabwe, Burundi, Cameroon, Chad, the Gambia, Guinea, Ghana, Kenya, South Sudan, and Togo.
