While pension funds were eventually exempted from the initial Domestic Debt Exchange Program (DDEP) announced in 2022; on July 31, 2023, the Government of Ghana announced that it was inviting Pension Funds holding domestic notes and bonds of the central government, E.S.L.A. Plc and Daakye Trust Plc to exchange approximately GH¢31 billion principal amount of eligible bonds for a package of new bonds.
The DDEP continues to have a direct and immediate short-term effect on the pensions industry’s liquidity, as well as its long-term stability as old bonds which did not participate in the DDEP may not benefit from active trading in the new bonds market. This article has been compiled by Enterprise Trustees, the Pensions management subsidiary of Enterprise Group to highlight the alternative offer to Pensions funds, and its implication to member benefits.
The illustration below gives a comparison between the DDEP standard offer and the alternative offer to pension funds.
The indicators below outline the benefits of the new offer for pension fund members and its resultant impact on member pension fuds.
| Patrimonial value increased by 15%. | The exchange ratio is 115% that is the outstanding amount of bonds that Pension Funds will hold increases by 15% upon participation in the exchange.
IMPLICATIONS FOR MEMBERS This means that member accounts are going to benefit from positive interest earnings. |
| Coupon payments are fully compensated with new coupon payments exceeding 18.5% of old bonds outstanding | As part of the exchange, pension funds will get new bonds which will have an average coupon of 8.4% on an amount equal to 115% of their current holdings. There is also additional compensation of 10% by way of a strip coupon warrant on the initial 100% being tendered. This result in a total of 19.7% coupon rate. |
| Average maturity is preserved | The average maturity of current holdings of Pension Funds is between 4 to 5 years, the current offer preserves the average maturity of pension fund holdings which will remain equivalent.
IMPLICATIONS FOR MEMBERS This means that member accounts are going to benefit from positive interest earnings. |
On the other hand, non-acceptance of the alternative offer will mean the following for pension funds:
- No more liquidity for old bonds: This means that old bonds will be much less liquid as new bonds will benefit from a larger investment base and a benchmark size. In addition, the investor base on the old bonds will shrink while that of the new bonds will further develop going forward, as the government is expected to finance itself by tapping into the new bonds to sustain benchmark size bonds that are well spread in terms of maturity.
- No more trading for old bonds: The old bonds will have a worse regulatory and accounting treatment for financial institutions as compared to the new bonds. This means that banks and insurance companies are not expected to buy or trade the old bonds.
- Prioritization of government cashflow for new bonds: This means that the payment of new bonds will be prioritized by Government.
While going through these times can be quiet unsettling to members, members can be rest assured that we will continue to engage and give updates through our monthly tomorrow today webinar series, Quarterly Newsetters, and continued engagements on our several social media platforms on Facebook @enterprisetrusteesgh, Instagram @enterprisetrustees and LinkedIn @enterprisetrustees.
Members who wish to seek more clarity can send us an email via [email protected].
