Some Ghanaian commercial banks are bearing the brunt of the Debt Exchange Program (DDEP) as some Eurobond investors have initiated legal actions against the impact of the exercise on their investment.
The group says the commercial banks failed to protect their interests during the debt restructuring exercise.
The investors, who suffered significant losses due to the restructuring, argue that the banks, which facilitated their bond purchases, did not do enough to shield them from the financial hit.
Lawyers representing the affected bondholders have officially notified the banks of their intent to sue, claiming that the institutions failed to act in their best interest when Ghana restructured its Eurobonds.
Some of the aggrieved bondholders claim they had initially refused to participate in the DDEP. However, they still experienced a major financial haircut as a result of the restructuring.
The legal challenge now raises critical questions about the role of financial intermediaries in government debt transactions and their potential liability in such processes.
Commenting on the suit, the Chief Executive of the Ghana Association of Banks, John Awuah, expressed surprise at the legal action, stating that commercial banks merely acted as distribution agents for the Eurobond issuance and had no influence over the restructuring process.
He says they are aware of the litigation threat, and some banks have already been taken to court. Mr. Awuah insisted that the bonds were issued with clear prospectus terms, including collective action clauses that governed such restructurings.
He therefore maintained that existing regulations make it clear that commercial banks cannot be held liable when the principal issuer which in this case is the government, fails to meet its obligations.
John Awuah
The unfolding legal battle is set to test the intermediary role of financial institutions in the country. As to how this will end, only time and the court of competent jurisdiction will determine.
Source: thehighstreetjournal.com
