Wednesday, July 24, 2024

Legal Implications of the Eurobond Default


By Chileshe Mange (Ms) CTPD Senior Researcher-Legal

The Centre for Trade Policy and Development has observed that the Government has failed to honour another coupon payment due under one of the Eurobonds. The Ministry of Finance confirmed on 31 January 2021 that Zambia had failed to honour a US$56.1m coupon payment due on January 30 on one of Eurobonds which matures in 2027 which raises concerns as to the potential legal and economic consequences of this breach.

In 2011 Zambia acquired low middle-income status which enabled it to access financing on the international bond markets. Between 2012 and 2015 the Zambian government issued three Eurobonds to the value of US$ 3 billion. Bonds in this context are fixed income debt instruments that represent a loan advanced by an investor to a borrower such a government or corporation which issues the bonds. Eurobonds are simply instruments that are issued in a currency other than the local currency of the issuing country.

The loans are supposed to be repaid through a series of scheduled coupon payments. A coupon payment of US$42.5 million coupon payment which was due on the 14 September, 2020, was not made in anticipation of a favorable outcome to a request by the Zambian government to the bondholders for a standstill.

In his ministerial statement to the National Assembly of Zambia on November 17, 2020, the Minister of Finance warned the house that one of the implications of Zambia not meeting its obligations was that the creditors could enforce their legal rights under the financing arrangements. In simplest terms failure of the Government to meet its obligations is a breach of the contract which allows the aggrieved party to enforce its legal rights under the contract. It should be stated that CTPD is not privy to the actual financing agreements governing the Eurobond issuances. We can only deduce the consequences based on international commercial practices.

Sovereign defaults are no longer considered above the law or unenforceable. Lessons are drawn from Argentina. When Argentina defaulted on more than $80 billion of debt in 2001, it led to years of litigation and legal cases taken by several disgruntled bondholders until a USD 10 billion settlement was reached. Another example is the Republic of Congo which was required by a New York court to pay on a 20year default in August 2017. Creditors had tied the country in litigation in various jurisdictions including France and the United Kingdom. Likewise, a US court authorised a Canadian money company to seize Venezuelan state assets in the United States pursuant to debt owed by Venezuela.

A second possible trigger of the default is a call on the entire amount due. In other words, instead of the bullet coupon payments which allow a gradual repayment until the date of maturity, the entire amount under a bond issue could become due.

Another implication of the sovereign bond defaults is a financial market embargo, caused in part by a drop in credit ratings, resulting in Zambia being precluded from accessing the capital markets and other potential financiers. Essentially private lenders will not be willing to lend Zambia money thereby limiting Zambia’s options for a debt restructuring.

CTPD urges the Government to continue negotiations with creditors in the hope of securing a debt service standstill whilst putting in place the necessary fundamentals for the economy to rebound or achieve some semblance of recovery. Given the prevailing economic conditions exacerbated by COVID-19 pandemic, costly commercial disputes should be a last resort.


  1. When Zambia continues to default it means we are in big trouble. I cannot see the way forward. what I see is regressing.

  2. Patriotic Front (PF) – famously impoverishing Zambia on a steady pace since 2011. Our kids and grand kids will pay for this mistake for years to come.

  3. Low to medium income status doesn’t necessary mean that u hv to borrow from the bond markets. Bond markets money was still too expensive for Zambia. China despite being a creditor nation was still borrowing World Bank money. It actually took a complaint from the USA for China to stop borrowing from the World Bank. So why did Zambia get more expensive money from the bond markets? No-one will give u an answer from the PF government. This middle income status was not due to any diversified economic growth but a commodity boom which tends to fluctuate.

  4. This is what happens when we have visionless leaders, please come soon August 2021 so we can get rid of this thieving PF Govt.

  5. Pathetic Foools govt and it’s vision less useless, thieving w@nker of a dull president don’t know or understand the implications of these defaults…. Too dull to grasp the full picture… Generations to come will suffer becoz of this. It will years to correct these mistakes by

  6. This is why I say education does not make a person wise. Indeed there are even educated f00ls within our midst. Instead of giving solutions, the so called educated people are only good at telling you what is wrong or negative as if we don’t know this. Further research will tell you that she is linked to an angry opposition party. I rest my cass

  7. KZ any body who has brains and thinks property and gives you good advise while explaining the results of what u and dull govt has done, then they from the opposition.. Grow up Chi colour… No wonder u have stup1d Lungu as ur boss, I personally can’t work for that id1ot, with 0IQ… More over all of u w@nker in pathetic f000ls don’t even have a brain that lady has….. Useless clinic cleaner to presidential advisor, what do advise, how to clean toilets…. Chi colour

  8. Bunch of thieves. They have mortgaged Zambia for personal gains.

    From lungu to his entire cabinet. They have plundered to the hilt. They have amassed millions if not billions.

    They don’t give a crap about people suffering. Basic services such as education and health is under severe degradation.

    Buying expired damaged Medicine from honey bee

    A clever smart person just need to google a new fire engine/ ambulance and see how much it costs in the UK or USA.

    Zambia bought second hand fire engines for a million dollars abc a quarter of them are write offs from accidents

    Wastage of money. But what does lungu care for him it’s free money.

  9. Yaba! So a advice to continue negotiating is not good enough solution? That is what is possible now as we are broke and cannot honor our obligations. Manje benangu ati ni opposition scholar. Muntu a chita compare and warns of the implication. That was the basis of the article. Kaya maso ya benangu. That is why it is taking time to come out of the woods. Too many people can’t see beyond particisan politics!

  10. For once I agree with KZ. We ALL KNOW the problem. We all know what will happen if we do not pay. We all know that government is engaging with the Creditors. It even hired debt experts to that end. SO, WHAT IS THE SOLUTION other than what is already being done? No economy can rebound without liquidity. Right now international lending rates are very low while we borrowed at a time when they were higher. What we can do right now is to raise our own cash by selling some of the remaining family silver and put in the contract the right to be the first to be offered to buy back. We have Zamtel and ZESCO. We can sell the internet business in Zamtel. We can sell the distribution business in ZESCO. This could give us at least $3 billion if we do it properly. To boost the local economy further,…

  11. The saint I am glad you are seeing things from that angle. That is what we need.solution based decision making is what we prefer. Not crying about things everyone can see and then you call yourself a scholar. Hahaha

  12. There is room to restructure and perform in the Bond markets and capital markets The efforts being made post default by the minister in appointments of advisory firms and Those to reassure that Zambia’s Bond economics are still an avenue and good grades to arbitrage and take positions in or invest in The returns are above normal for the Investor with a long horizon or position Its Good to Notice that many default provisions are designed to curtail liability or limit it to individual bondholder to enforce its rights against the sovereign debtor like Zambia Post default It curtails those bond holders to pursue such aggressive litigations especially during these efforts to restructure…

  13. Comrade I appreciate your findings and recommendations.
    Like others have have alluded to govt officials must not politicise your findings but must take kin interest understand n find ways of enhancing economic recovery and reducing the debt burden for posterity.

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