International Comedian threatens to sue Ghana over Eurobond default

The government of Ghana is halfway through a process to convince holders of Ghana’s $13.1 billion of Eurobonds to return them in exchange for new versions that will pay them substantially less.

Such erosion of wealth is always a solemn affair but there is no law that stops a comedian or a few from showing up to liven up such a dull affair.

When the comedian also happens to be world-famous, then, well, social media will be set agog. Which is precisely what happened when Michael Blackson took to his pages to berate the Ghanaian government, most likely, after seeing the “exchange offer” document issued on September 5th.

 

The professional funny guy of Ghanaian-Liberian ancestry clearly felt deeply affronted. His tweet-storm attracted hundreds of thousands of views and was reported by all major Ghanaian media outlets.

The thread had facts, such as the total amount he has locked up in Eurobonds ($1 million) and the intention he had when investing (to build an endowment for a charity school).

But it also had some rather curious speculations, such as the claim that the government of Ghana has diverted the Eurobond money to pay off China.

Well, when Ghana stopped servicing its foreign debt in December 2022, most external creditors were affected equally. Only a few like the World Bank and IMF were exempted. Also excluded were creditors that deal exclusively with the Bank of Ghana and those foreigners that still choose to lend Ghana money after 19th December 2022. Governments that have loaned funds to Ghana, like China, were not exempted from Ghana’s decision to stop paying interest and principal on foreign debts.

However, Blackson does have a minor point, which is that the so-called “bilateral creditors” (foreign governments that lend money to the government of Ghana) never really agreed to “haircuts”. They, instead, agreed to extend the grace period during which Ghana needs not service their loans.

On top of that, they have agreements to lend Ghana $3.8 billion more money that will not be subject to any restructuring, except that the IMF insists on $3.3 billion of this amount being delayed until from 2026 onwards. China also has debts of $655 million to Ghana that were collateralised with oil, cocoa, bauxite, and electricity sales. Essentially, they are immune to restructuring anyway.

If we are to really stretch Blackson’s point, then it is the multilateral banks like the African Development Bank (AfDB), IMF, and World Bank that, having escaped unscathed, can be said to be receiving monies otherwise “diverted” from Mr. Blackson. Between 2022 and 2029, the IMF is all set to receive $2 billion from Ghana in debt servicing payments. Let us not forget though that without its contributions (as indicated in the table below), Ghana would probably have shut down in 2023.

 

 

 

Mr. Blackson does make a number of points about “fixing” whatever mess that got Ghana here in the first place, where international comedians are threatening to take it to the “World Court” (i.e. the International Court of Justice). He is probably better off suing in a London court, though (not legal advice).

The government of Ghana explicitly waived its immunity before courts in England when issuing the Eurobonds. It also said that the courts in Ghana will enforce judgments issued in the English courts, as well as some courts in Spain, France, and Italy that enjoy a certain recognition by the High Court of Ghana.

Seeing as Mr. Blackson hasn’t even sought legal advice, it is unlikely that he plans to sue. So, what can he do? Well, first, he can choose to sign the documents tomorrow, the 20th of September, which is the early consent deadline. Holders of Ghana’s Eurobonds who do that get a special fee of 1%. For Mr. Blackson, this means he will receive roughly $10,000 if he signs tomorrow.

In addition, he gets to receive new Eurobonds that are worth less than what he bought. There are seven types of bonds in two flavours. In both cases, the Eurobond holder receives, but in the form of new bonds, two-thirds of the arrears that have accrued between December 2022, when the government stopped paying, and December 2023. (There are also some bonds called “down payment bonds” that pay out sooner, but I will ignore them from the analysis, which is already too convoluted as it is.)

The first flavour of the bond has the dreaded 37% haircut, meaning one-third of Blackson’s money would be gone if he chooses this bond alone. That would be roughly $370,000. The interest rates on these bonds, except for the bonds that cover the interest arrears, start at 5% and climb to 6% after 2028. Much lower than the 8.875% he would have received if, for instance, the Eurobond he bought was the one issued in March 2021 and maturing in 2042. He has said, however, that the promised rate was 10% a year, which can only mean the October 2015 one that had a 10.75% coupon rate. If that is correct, then he will be getting roughly $53,750 a year instead of the $107,500 he was promised.

It is actually more complex than that, to be honest. Of the $13.1 billion that Ghana owed through Eurobonds, $1.6 billion of those must be replaced with a type of bond that pays very low interest rate of 1.5%. But there are no haircuts on those. Blackson can choose this bond but if there is demand above the $1.6 billion cap from other investors, then he only gets a fraction. At any rate, what he gains by avoiding haircuts he will lose by getting interest of barely $15,000 a year for his school instead of the $107,500 he has been counting on.

(Obviously, nothing I have said so far is either legal or investment advice. This is merely a quick and dirty stroll to give readers a feel for the decision-making)

In short, the man just wanted to invest some money so that his charity school in Nsaba, Southern Ghana, would have an endowment for the future, yet he must now make some convoluted decisions (see the overview in the table below) or pay fees to his financial advisor to advise him to make those decisions (highly recommended!) And whatever he does he is destined to lose hundreds of thousands of dollars!

 

 

 

A very good champion of Ghana drawn to invest “back home” by the country’s relentless image-polishing is turning out to be one of its most well-known international critics.

Be that as it may, if Mr. Blackson doesn’t choose by tomorrow evening, he loses the $10,000 inducement fee. He would then have up to September 30th to sign up. If by then he still hasn’t signed, then he is technically in hold-out territory.

Only 5% of Zambia’s Eurobond holders refused to sign the forms when the country restructured their Eurobonds in June 2024. Ghana would like to see a comparable level of participation (95% consent).

Since 1994, the vast majority of debt restructurings have seen a participation/consent rate of more than 90%. Excepting the Ukrainian episode of 1999, which saw a truly crazy situation of a 50%-plus holdout rate, restructurings in the last three decades have generally succeeded without much fanfare. Even Argentina’s rollercoaster restructuring ride of 2005 saw an ~80% participation rate.

Ghana’s own episode has been designed to include a 2-month grace period for holdouts. If holdouts submit their forms before the grace period expires, they will still get the new bonds described above. But there is another twist.

As part of the mechanism asking Eurobond investors like Blackson to sign up for the new bonds, certain contractual features in the majority of the bonds are also being activated.

These features allow more than 66% of investors to change certain clauses in the contracts on which the bonds are based, and more than 75% of them to vote changes to the payments terms.

In effect, if more than 75% of current holders of Ghana’s Eurobonds choose to accept the new bonds, holdouts would then have up to November ending to sign up. Else, the new, lower-value, bonds that would have been assigned to them would simply be sold on the market and whatever monies are realised sent to them in cash minus any costs incurred in arranging the sale.

It is not hard, taking all the above into consideration, to understand the stress that Mr. Blackson is going through and the cause of his recent outbursts.

[The threats of Mr. Blackson are not the only interesting issue that has come up during the ongoing three-week exercise to restructure Ghana’s Eurobond debt. A curious “strategic advisor” has also popped up.

Source:norvanreports.com