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Moody’s assigns provisional B1 rating to Ghana’s forthcoming bond issue

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EurobondMoody’s has assigned a provisional B1 to Ghana’s proposed bond issue, but indicates that it expects to remove the provisional status of the rating upon the closing of the proposed issuance and a review of its final terms.

In an email copied to ghanabusinessnews.com today September 22, 2015, the rating agency says the bond is enhanced by a partial guarantee provided by the International Development Association (IDA) which shall be the lesser of $400 million and 40 per cent of the face value of the bond.

“Ghana’s issuer rating is B3 with a negative outlook,” it says.

The agency notes that separately, the government of Ghana has approvals to issue an additional Eurobond in 2015 without guarantee.

“Moody’s will assign a provisional rating of provisional B3 in line with the issuer rating to subsequent bond issues upon review of the provisional terms,” it adds.

Moody’s states the following as rationale for the rating. It says conditional on Ghana’s successful completion of an IMF review mission, on June 30, the World Bank (IBRD, Aaa stable) approved the first Policy-Based Guarantee (PBG) via its IDA arm, offering Ghana a partial bond guarantee of up to $400 million to facilitate the sovereign’s access to external funding of up to $1 billion.

The partial guarantee, the agency notes, is unconditional and irrevocable subject to the Deed of Guarantee in the preliminary prospectus dated September 21, 2015, and covers outstanding interest payments on a rolling basis up to the guarantee limit before providing coverage of principal payment which will be repaid in three equal instalments.

“In line with the instrument’s policy-based conditionality, the use of proceeds is intended to support the government of Ghana’s medium term debt management strategy by allocating the net proceeds to the repayment of outstanding domestic debt without increasing the overall stock of debt,” Moody’s adds.

The partial guarantee Moody’s says provides for recovery on up to 40 percent of the bond’s value in the event of default, while the other 60 percent of the bond’s value remains exposed to credit risk of the Government of Ghana.

According to the agency, Ghana has an obligation to reimburse IDA for any called guarantee under the Indemnity Agreement. As a result of preferred creditor status, Ghana may prioritise IDA and other preferred creditor liabilities ahead of all commercial lenders during a time of debt distress.

“An effective 40 percent reduction in the expected losses on this bond is consistent with two notches of uplift to B1 from B3. Absent the partial guarantee, the bond would have been rated provisional B3 in line with the issuer rating,” it says.

By Emmanuel K. Dogbevi

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