Ghana’s external bonds still attractive – Morgan Stanley

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NEW YORK — Ghana’s domestic debt restructuring will likely bring in some $7 billion in cashflow relief, and external debt would be enticing on similar terms, Morgan Stanley said on Tuesday.

Based on similar treatment as Ghana’s local debt, the external bonds would have a recovery value of 41 cents on the dollar with a 15% exit yield and 38 cents on a variable exit yield, the Wall Street bank said.

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“With the average price being at (36 cents), it would suggest that the market is currently pricing in a similar outcome as the upside is only an average of 6%,” strategist Neville Mandimik said in a client note.

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“We retain our like stance on the credit as we see a chance that external relief could be less than what is sought domestically given that domestic interest costs are higher than external payments.”

Mandimik said bonds would probably trade lower once a formal announcement is made on the foreign debt as current owners who cannot hold defaulted bonds would be forced to sell.

Ghana’s dollar bonds currently yield from the mid-20% to above 60% in some shorter maturities, except for its 2030 issue that trades near 67 cents, yielding nearly 19%.

Ghana announced on Sunday it would launch a domestic debt swap and earlier this week Finance Minister Ken Ofori-Atta said interest charges on its debt consume 70% to 100% of the West African nation’s revenue, “something that is not sustainable.”

A producer of cocoa, gold and oil, Ghana is negotiating a relief package with the International Monetary Fund. Its cedi currency has fallen as much as 58% to the dollar this year, last trading at 12.8 per greenback in a 53% year-to-date decline. (Reporting by Rodrigo Campos; Editing by Richard Chang)

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