(Bloomberg) -- Ghana reached an agreement in principle with private creditors to restructure about $13 billion of debt, a key milestone in the West African country’s efforts to overhaul its loans. The nation’s bonds rallied.

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Under terms of an accord announced on Monday, investors accepted nominal losses of 37% on their holdings, according to a statement issued by the advisers to an international creditor committee and the government.. Bondholders will forego $4.7 billion of their claims, while providing cash flow relief of about $4.4 billion during an International Monetary Fund loan program, it said.

“The agreement in principle entails important concessions from bondholders, while providing the required debt relief to the government,” it said.

The announcement marks a major step since Ghana unilaterally suspended payments on external loans and embarked on a debt overhaul in December 2022 to fulfill conditions for a $3 billion IMF program. It comes after the fund rejected an earlier pact between the government and bondholders in April for failing to meet debt-sustainability requirements.

Earlier this month, Zambia clinched a similar arrangement with investors that enabled the southern African nation to issue two series of restructured notes after nearly four years of default.

Ghana’s 2027 bonds jumped to rank among the top performers in emerging markets after Monday’s announcement. The price of debt due in March 2027 climbed 0.3 cents to 52.69 cents on the dollar. A close at that level would be the highest since August 2022.

The deal presents investors with the choice between two alternatives: a so-called DISCO option or a PAR option.

Investors who go for former option will receive 5% interest rate on new bonds from January this year until July 2028 and 6% thereafter, according to the statement. Bondholders who opt for the latter will get a 1.5% interest rate on new bonds without any haircuts.

The IMF’s executive board is expected to meet on June 28 to affirm that the deal fits into debt sustainability parameters.

“The IMF staff has confirmed that the agreement in principle is compatible with program parameters in the context of the IMF’s second review of Ghana’s three-year program under the extended credit facility,” according to the statement. “This assessment will have to be officially confirmed following the next IMF board meeting this month for the approval of the second review.”

Ghana, which is reorganizing almost all of its $43 billion of debts under the Group of 20’s Common Framework, concluded a domestic debt exchange last year and earlier this month reached a memorandum of understanding with its official creditors led by France and China to revamp $5.1 billion. The G-20 mechanism expands the Paris Club of sovereign lenders to include China and other nations.

Given the framework’s comparability of treatment between bondholders and official creditors, the next step will be for the official creditor committee to assess whether the deal fulfills the comparability-of-treatment principle.

Based on the preliminary analysis of the secretariat of the official creditor committee, the co-chairs consider that this agreement-in-principle is “a good basis for a consultation of the official creditor committee members, in order to provide promptly the collective assessment of the official creditor committee regarding the comparability of treatment principle,” according to the statement.

The IMF rejected the April agreement because it failed to show it would support a reduction in the country’s debt ratio to 55% of gross domestic product by 2028, compared with a burden of 109% before Ghana began restructuring. The current talks were then spurred by better-than-anticipated economic growth in 2023, when the economy expanded 2.9%, compared with the 1.5% IMF estimate used in the first-round of talks.

--With assistance from Colleen Goko.

(Recasts with country’s debt savings in lead.)

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