Zambia External Bondholder Steering Committee Reaches US$3 billion Debt Restructuring Agreement

The Zambia External Bondholder Steering Committee has successfully reached an agreement with the Government of Zambia on the restructuring of Zambia’s Eurobonds, totaling US$3 billion.

The agreement, known as the 2024 Agreement, follows the confirmation by the Government that its terms align with the Official Creditor Committee (OCC) assessment and the IMF’s program parameters under the Second Review framework.

President Hakainde Hichilema expressing excitement on his facebook page wrote “Fellow citizens. It’s done! Debt deal done with Eurobond holders of over $3.5 billion. What a journey and thank you Zambians for your patience and unwavering support during this process that has taken long to conclude. Now that this is done, our economic recovery is back on track. Phew!”

Since November 2023, when the previous agreement-in-principle (AIP) fell short of meeting comparability of treatment provisions, the Committee has continued to support the Government’s efforts towards restructuring. The 2024 Agreement offers further debt relief while ensuring the cure of the standing default on the Eurobonds.

The restructuring terms are based on the same structure as the November 2023 AIP. The agreement includes the issuance of two new Eurobonds (Bond A and Bond B), offering future debt relief based on Zambia’s economic progress. It also includes enhanced repayment terms and higher coupons on Bond B, contingent on Zambia’s debt carrying capacity and meeting IMF projections.

The Committee expressed appreciation for the collaborative discussions with the Government that led to the agreement, aiming to restore international capital markets access to Zambia and encourage long-term investment.

The key elements of the 2024 Agreement are outlined in the Government’s press release. Implementation is subject to mutual agreement on deal documentation, with efforts to execute the agreement promptly.

The Committee urges all Eurobond holders to consider the terms of the Government’s prospective offer and make independent assessments of participation risks and merits.

Members of the Committee include asset managers such as Amia Capital LLP, Amundi (UK) Limited, Farallon Capital Management, LLC, Greylock Capital Management, LLC, and RBC BlueBay Asset Management. The Creditor Committee is advised by Newstate Partners and Weil Gotshal & Manges (London) LLP.

Below is the Press Release

Government of the Republic of Zambia Reaches Agreement on Debt Restructuring Terms with the Steering Committee of the Ad Hoc Creditor Committee of holders of Zambia’s Eurobonds

Lusaka, Zambia, March 25, 2024 – The Ministry of Finance and National Planning of the Government of Zambia (the “Government”), advised by Lazard Frères and White & Case LLP, acting respectively as financial and legal advisors, is pleased to announce that following private discussions between March 18 to 25, 2024 with the members of the Steering Committee (the “Steering Committee”) of the Ad Hoc Creditor Committee (the “Committee”), advised by Newstate Partners LLP and Weil, Gotshal & Manges (London) LLP, it has reached an agreement with the Steering Committee on the key commercial terms of a proposed restructuring transaction (the “Restructuring”) relating to the Government’s bonds due 2022, 2024 and 2027 (the “Bonds”, and the holders thereof, the “Bondholders”). The members of the Steering Committee currently own or control approximately 16% of the outstanding Bonds, while all the members of the Committee currently own or control more than 33% of the outstanding Bonds.

Pursuant to the agreement, Bondholders will be invited to exchange and/or vote in favor of a consent to amend the terms of their Bonds for new fixed income instruments representing unsecured obligations of the Government (the “New Bonds”). The structure of the agreement is unchanged compared to the agreement in principle reached on November 20th, 2023, with revised terms outlined in Annex A hereto for both the Base Case and Upside Case treatments.

The Government has received confirmation that the agreed terms are compatible with the OCC’s assessment of comparability of treatment and are compatible with IMF’s program parameters under the Second Review framework.

The agreement entails important concessions from the Bondholders, while providing the required debt relief to the Government. Under the agreement, Bondholders would forego approximately $840 million of their claims, and provide cash flow relief of approximately $2.5 billion during the IMF programme period. Respective weighted average maturity will be 15 years and 8 years under the Base Case Treatment and the Upside Case Treatment. As a result, the present value concessions from the Bondholders at current market rates will be significant. However,these concessions are necessary given the constraints faced by Zambia and are essential to achieve the relief required under the Debt Sustainability Analysis to restore financial stability to the country.

The agreement with the Steering Committee also includes the Government accepting certain non-financial terms of the New Bonds, including a most favoured creditor clause that will require the Government to ensure certain other creditors do not receive a better recovery in the restructuring on net present value terms, a loss reinstatement clause if Zambia were to default during the term of the existing IMF program and certain ongoing information delivery requirements by Zambia.

The Government and Steering Committee intend to use their best efforts to finalize documentation for the exchange and / or consent promptly.

The Restructuring will be implemented through an exchange offer and/or consent solicitation. Implementation of the Restructuring remains subject to agreement between the Government and the Steering Committee on the definitive legal documentation for the New Bonds and exchange offer and/or consent solicitation.