Market update: Sovereign restructurings making progress
In Short
By Michael Wainø Hansen, Senior Strategist at Global Evolution
Significant progress has been made in debt restructuring efforts this year, mainly via the G20’s Common Framework process, with countries like Zambia and Ghana successfully concluding negotiations. The progress owes much to the development of mutual understanding and experience among stakeholders, including non-traditional official creditors like China, India, and Saudi Arabia. Defaulted bonds in the EMBIGD index have caused significant spread volatility, but restructuring may not necessarily solve that: restructured bonds from Zambia, Ghana, Sri Lanka and Ukraine entering the EMBIGD at lower spreads may continue to cause volatility.
Restructurings making progress
Restructuring negotiations under the G20’s so- called Common Framework process have been challenging and protracted but finally yielded results in 2024. The progress is largely due to the development of mutual trust and experience among stakeholders, including non-traditional official creditors like China, India, and Saudi Arabia, which have accelerated the restructuring process.
Zambia and Ghana have successfully concluded debt restructuring negotiations with bondholder committees this year, both under the Common Framework as well as though other methods. Sri Lanka concluded its restructuring negotiations successfully with the process notably faster than it was for Suriname. Ghana and Sri Lanka are awaiting bondholder votes to secure the necessary majority. Ukraine announced its agreement with bondholders on 22 July, but it has yet to be formally finalized. Remaining countries in default include Lebanon, Venezuela and Ethiopia.
We also note a decline in emerging market sovereign defaults and requests for comprehensive debt relief since the peak in 2021 and 2022; Ghana's request in January 2023 was the last significant instance (index weight close to 1%) noting that Ethiopia defaulted in December 2023 (index weight
0.1%)
Noisy credit spreads
Defaulted bonds in the Emerging Market Bond Index Global Diversified (EMBIGD) have caused significant spread volatility over the past few years.
After reaching a peak spread of 1203 basis points in March 2020, the EMBIGD high yield spread narrowed to 556 basis points in June 2021, only to widen again to 1088 basis points in July 2022.
