Zambia skipped an interest payment on its debt, moving closer to becoming the first African nation to default on dollar bonds since the onset of the coronavirus pandemic.
Holders of Zambia’s $3 billion of Eurobonds will vote next week on the country’s request for a six-month interest-payment holiday.
A core group of creditors have already rejected the proposal, prompting Zambia to say it won’t be able to service its commercial debts including the bonds unless it gets the relief.
The government failed to make a $42.5 million interest payment yesterday, according to Bwalya Ng’andu, Zambia’s finance minister. It has a 30-day grace period before it becomes a default event allowing bondholders to demand immediate repayment of the principal.
At the center of Zambia’s case is how commercial investors are treated in a planned debt restructuring.
The showdown with creditors makes it a test case for nations worldwide battling to meet obligations to a range of lenders, from bondholders to Chinese state banks.
It also highlights the role of private creditors in the global drive to assist poorer, highly indebted nations.
“Zambia is between a rock and a hard place with the IMF demanding transparency on Chinese loans and the political economy going into the elections,” said Ron Raychaudhuri, an emerging-market fund manager at APG Asset Management in Amsterdam.
“Some Chinese lenders also seem to be reluctant to allow a moratorium until arrears are dealt with.”
‘Absence of Progress’
The Group of 20 agreed Wednesday to renew a debt-relief initiative for the poorest countries through the first half of 2021.
The group said in a statement it was “disappointed by the absence of progress of private creditors’ participation” in its Debt Service Suspension Initiative.
It’s working on a framework that could serve as a blueprint for government debt restructuring.
Eurobond holders want Zambia to sign up for an economic program with the International Monetary Fund before tackling its commercial debt.
But the country’s debt levels are significantly above the Washington-based lender’s thresholds, and a general election in 10 months makes deep spending cuts less likely.
There are also questions about transparency around borrowing from China, which accounts for as much as a third of the nation’s $12 billion of external debt.
Zambia already gained some relief from the Paris Club group of bilateral lenders, and said it wants all commercial and bilateral creditors, including bondholders, to commit to similar measures.
Skipping the Eurobond interest payment was part of that process and done at the urging of Zambia’s debt advisers, including Lazard Freres and White & Case, Ng’andu told lawmakers Thursday.
“They were of the strong view and opinion that if we pay we were going to create a very hostile environment within which to negotiate with other creditors, because we would have departed from the principal of pari passu,” Ng’andu said.
“Based on that, we didn’t make the payment that was due yesterday. Not because we didn’t have the money to pay, but because the issue of treating all the creditors equitably is a very important part of the process that we are going through.”
Zambia’s Eurobonds slumped for a third day on Thursday, and are trading at less than half their face value.
Notes due 2024 fell 5.5% to 41.7 cents on the dollar by 3:07 p.m. in London, the lowest on a closing basis since May.
The securities have lost 14% of their face value since Monday.
While the pandemic has contributed to Zambia’s debt woes, the IMF warned more than two years ago that the nation was already at high risk of debt distress after a borrowing binge.
Still, a rebound this year in copper prices which Zambia relies on for about 70% of export earnings means that the government could probably stay current on Eurobond coupons if it chose to.
The government should focus on extending maturities of the notes, according to Richard Briggs, a fund manager at GAM Holding AG in London, which holds Zambian bonds.
“I think at these levels, Zambia is worth holding as recovery values, even if the negotiations might last beyond the elections, should in the case of Zambia be generous versus current trading levels,” he said.
Bloomberg
Keep wishing us bad things. It won’t happen
. We know who is praying for a bad economic climate in this country. Go on Facebook and see his page. The little boy hh is so excited in his pants because of hearsay that we will default. It has not happened and even if it did so what? We wont be the last. Big companies are closing world over and even the same countries hh worships are in record debt. No one really cares about silly numbers when we are in a pandemic. Go and play on your calculator and jerk off
The financial struggle is universal. Greece and Italy have been there already. Now Britain is also in a similar position with their no-deal exit from the European Union. They’re playing delay tactics, so why can’t we?
Mr Zulu first and foremost you don’t have the expertise in how an economy functions. What education background do you have. You have the audacity to say every country is going through tough economic volatility as well as borrowing money. Countries like the UK/ USA have no doubt racked up debt but for a second look at thier GDP.
I will give you one example. Apple’s market capitalisation is over 2 trillion dollars more than UK’s stock market the FTSE
These countries can pay off the debt. What industries or what steam of revenues dies Zambia have to pay off this debt. One answer zero.
This thief Lungu and his minions have stolen and looted to the hilt. All these money borrowed there’s been no accountability.
As the saying goes once a thief always a thief. If you have the balls…
@ Scouser, KZ has a learning disability. Even elementary school language is hard for him and he does not have the ability to read and assimilate let alone deduct what he gets even with little knowledge. look retrospectively what he says on this site, its all gibberish. He blames the whole world for a bad economy in Zambia. That’s KZ level of ignorance.
Scouser what can stop us paying back the debt? Haven’t we been paying all along? Your name says it all, mwayenda abroad you even think you have turned into a scouser. Lack of patriotism and inferiority complex. To you an African cannot manage but western countries can do it. What makes you think that way ?
Muna dekhane good afternoon . How are you? Have a blessed weekend
This government does not deserve a reprieve, the saved money will only be misapplied especially with elections due soon whilst some will go to brutalising it’s citizens, the taxpayers, let’s talk of a reprieve after elections
Hands up if you think Lungu knows what he is doing.
We told you so about these debts when Lungu was borrowing. We got insulted by PF cadres who have since vanished. The debt will however no vanish.
Now our comments are being blocked by Lusaka Times. It is too late now, PF is damaged goods.
Even if they gave lungu and PF $300 billion , Zambia would be back begging for aid and debt relief after 15 years…..
Utterly useless , with misplaced priorities.
Elo lwanya, na economy ya lungula.
You didn’t have money to pay just admit it and stop beating about the bush.
Economies are struggling world over, it doesn’t need an economic expert to say it. Zambia will pull through in one way or another, there’s always a solution!!!
Iwe diaspora lady Zambian economy has been in ICU way before we heard about korona virus in chaina.
@ Green one, even if Zambia was struggling prior to C19, how do you honestly expect the economy to have recovered independently if all other economies are now impacted by C19?? Let’s be realistic!!! Stand for President and let’s see how you will run the economy.
Keep your eye on the ball, Zambia and focus on feeding the people!