History made, says Zambian president after debt breakthrough

Zambia said on Monday that it had reached an agreement with a group of private creditors on restructuring $3bn of its international bonds — a major step that brings the country closer to emerging from its long-delayed debt rework.

The latest deal proposes swapping the country’s three existing instruments into two amortising bonds, one of which would deliver higher repayments if the country’s economic outlook and capacity to deal with its debt burden improves.

“History has been made!,” President Hakainde Hichilema wrote on social media platform X. “We are pleased to announce the agreement with our eurobond holders.”

Zambia defaulted three years ago and is reworking its debt under the Common Framework, a Group of 20 platform designed to ensure swift and smooth debt overhauls for low-income nations.

But the process has been beset by long delays, which have hamstrung much-needed investments, curtailed economic growth and weighed on local financial markets. The situation has worsened amid a devastating drought that has been declared a national disaster and which affects hydropower generation and food production.

Zambia secured a $1.3bn loan from the IMF in 2022, which required it to restructure its debt.

Monday’s proposal is in structure much like a preliminary deal that was reached late last year but was then derailed after being rejected by official creditors, which include countries such as China and France.

However, there are some changes in substance. While the overall claim that bondholders have against the country grew to $3.98bn due to accumulated unpaid interest, under the new deal investors will receive bonds with a face value of $3.05bn — a reduction from the $3.135bn proposed in October.

Under the agreement, bondholders would forego approximately $840m of their claims, the statement said, compared with $700m in the previous proposal. Cash flow relief remained the same at about $2.5bn during the IMF programme period.

An IMF spokesperson said via email the “agreement is consistent with the parameters of the IMF programme”.

Bondholders welcomed the agreement in a separate emailed statement. “We are pleased to have finally reached a definitive and conclusive agreement with the government that is supported by all stakeholders,” said the group of private creditors, which include Amia Capital, Amundi, Farallon, Greylock Capital Management and BlueBay Asset Management.

The government said it would ensure that “certain other creditors do not receive a better recovery in the restructuring on net present value terms” and also a loss reinstatement clause if Zambia were to default during the term of the existing IMF programme, the statement added.

Reuters