Zambia has launched a vote with its Eurobond holders, proposing to defer interest payments on its three outstanding dollar-denominated bonds until April 14, 2021.
Zambia has $3 billion of Eurobonds outstanding and owes $2 billion to commercial banks, $2 billion to the International Monetary Fund and World Bank and another $3 billion to China.
The statement said Zambia had engaged with the IMF in recent months and was working in “close coordination” with the fund to establish strategies required to return its debt to a sustainable level.
“The proposal is intended as a first step to provide the issuer and its advisors the necessary breathing time to finalise the debt sustainability analysis and to define the parameters of a debt restructuring strategy aimed at putting the debt on a sustainable trajectory, which is a pre-condition to IMF lending,” the government said in a statement.
The country’s dollar bonds suffered sharp declines, with the 2022, 2024 and 2027 issues ZM082877959=, ZM105638671=, ZM126708157= all down nearly 3 cents in the dollar to trade around 53 cents in the dollar.
Zambia said it would conduct a call with investors on Sept. 29 to discuss the plan and set a deadline for the vote on its proposal set for October 16.
“The Ministry of Finance has announced a Consent Solicitation to holders of its (i) U.S.$750,000,000 5.375 per cent. Notes due 2022, (ii) U.S.$1,000,000,000 8.500 per cent. Notes due 2024 and (iii) U.S.$1,250,000,000 8.970 per cent. Notes due 2027 (the “Notes”) to request the suspension of debt service payments for a period of six months from 14 October 2020, effectively covering the upcoming three coupon payments due on 14 October 2020, 30 January 2021, and 20 March 2021 on the respective Notes.”
It added, “The Republic of Zambia is confronted with a very challenging macroeconomic and fiscal situation aggravated by the COVID-19 crisis that has severely affected the country’s public finances. A combination of declining revenues and increased unbudgeted costs caused by the COVID-19 pandemic have resulted in a material impact on the Government’s available resources to make timely payments on its indebtedness leading to increasing debt servicing difficulties.”
It said this is the reason why the Republic of Zambia has taken the decision to apply for the G20 Debt Service Suspension Initiative in August 2020 and is requesting similar debt service suspension from its commercial creditors, including its noteholders.
It said it continues to actively engage with the IMF to secure financial assistance within a programme of reforms that would help in stabilising the macroeconomic outlook of the country and restoring its fiscal balance.
“In this context, the Government is committed to finding a consensual and collaborative resolution to the debt sustainability issues it is currently facing.”