Picture: 123RF/CSEH LOAN
Picture: 123RF/CSEH LOAN

Lusaka — Zambia became the first African country to ask bondholders for relief since the onset of the coronavirus, seeking to defer interest payments on its Eurobonds as it battles the economic hit from the pandemic. The securities plunged.

The southern African nation asked for meetings on October 20 with the holders of three Eurobonds totalling $3bn to seek consent for a standstill until April 2021, to create “breathing space” as it plans a debt restructuring. Zambia’s $1bn notes due 2024 fell more than 5% in London to 52.12c on the dollar, after the government said a coupon payment due October 14 would be included in the proposed suspension.

“Zambia is now faced with unprecedented liquidity constraints that have been worsened by the Covid-19 pandemic, resulting in a substantial decline in revenues,” the government said in an e-mailed statement on Tuesday.

“A combination of declining revenues and increased unbudgeted costs caused by the Covid-19 pandemic have resulted in a material affect on the government’s available resources to make timely payments on its indebtedness, leading to increasing debt servicing difficulties.”

The pandemic has worsened Zambia’s finances, which were already straining after years of overspending funded in part by external borrowing. The currency of Africa’s second-biggest copper producer is the world’s worst performer in 2020, making external debt payments even more costly after foreign reserves slid to record lows. The government said it hopes its restructuring plans will win support from the International Monetary Fund (IMF).

Under Zambia’s proposal, it will pay bondholders $0.50 per $1,000 in bond principal they hold if the coupon-payment suspensions are approved. Most investors will probably accept the proposal, according to Mark Bohlund, senior credit research analyst at REDD Intelligence in London.

“We think that a majority of bondholders will agree to the standstill,” he said in response to e-mailed questions. The lack of the collective action clauses in Zambia’s 2024 and 2025 bonds “makes it more likely that you are going to see holdouts in the later restructuring process”, he said.

Rafael Molina, managing partner at Newstate Partner, which is advising a group of Zambia’s bondholders, declined to comment.

Zambian finance ministerr Bwalya Ng’andu is due to present the 2021 budget on Friday, which could offer insights into the government’s restructuring strategy and chances of winning an IMF bailout.

Bloomberg

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