Ghana Surprises Investors by Suspending Debt Payments

(Bloomberg) -- Ghana suspended interest payments on its external debt, catching bondholders by surprise ahead of restructuring talks aimed at unlocking an International Monetary Fund bailout.The West African nation on Monday suspended payments on $13 billion of eurobonds, as well as commercial loans and most bilateral obligations pending an agreement with creditors, the Ministry of Finance said in an emailed statement. The unilateral move stands to complicate negotiations with creditors that were set to start formally within days.Ghana's international bonds fell, while the currency advanced after the announcement. The nation secured a staff-level agreement with the IMF last week for a $3 billion three-year extended-credit facility. 'The market was probably expecting that Ghana would try to avoid an outright default and continue to service debt while the restructuring is negotiated, but clearly that perception of goodwill from the government side was wrong,' said Carlos de Sousa, a portfolio manager at Vontobel Asset Management in Zurich, which holds Ghana bonds. 'It does change the perception about how market-friendly the restructuring negotiations will be. 'Ghana's bonds due 2032 fell 2.3 cents on the dollar to 32.9 cents by 1:15 p.m. in New York, according to data compiled by Bloomberg. 'We would like to certainly go to the IMF board as soon as possible,' he said. And so my suspicion is that we'll get to a good discussion and announce the measures before end of this year. 'Ghana earlier this month announced a voluntary domestic debt-exchange program for its local bonds that involved interest losses for holders. With investors slow to sign onto the program, the government was compelled to extend the deadline a second time to Dec. The government would consider changing the terms during this period to accommodate bondholders, Ofori-Atta said.Monday's announcement, which is an interim measure pending agreements with all relevant creditors, was necessary to prevent a further deterioration of Ghana's fiscal situation, the finance ministry said. 'The market thought a restructuring was inevitable, but it was hoping that it would be done on a consensual basis so Ghana would stay current on eurobonds payments while the restructuring parameters were agreed,' said Joe Leadbetter, a London-based credit analyst at Emso Asset Management. 'So the decision to unilaterally default, without requesting a debt-service suspension through a consent solicitation, is a surprise. 'Fitch Ratings lowered Ghana's domestic debt rating to C from CC after the domestic debt exchange program started, with plans to cut it again to a default score of RD once the bond swap is completed. S&P Global Ratings slashed the local ratings to selective default, while Moody's Investors Service also considered the local debt exchange a distressed event that would constitute a default.Further losses for the nation's bonds are likely as investors prepare for restructuring talks that may be unfriendly, said Richard Segal, a research analyst at Ambrosia Capital in London.The announcement is 'somewhat surprising, as this reduces the prospect of the restructuring being amicable,' he said. --With assistance from , , and . (Updates chart, prices in fifth paragraph.