Zambia in talks with bondholders as it seeks interest-payment freeze
Assurances from the finance minister that the country will not default on payments have not eased fears
Lusaka — Zambia has started talks with its bondholders a day after an investor committee rejected the country’s request for an interest-payment standstill, saying it needed more information on restructuring plans.
Dialogue has commenced between representatives of some of the Eurobond holders and Lazard Freres and White & Case, which are advising Zambia’s government, according to two people familiar with the matter, who asked not to be identified as the talks are sensitive. While Zambia’s finance minister addressed creditors in a webcast on September 29, he didn’t allow questions, making this the first discussion with Eurobond holders since they formed a committee in June.
Assurances from Zambia’s finance ministry that the Southern African nation won’t default and has budgeted to meet interest payments have so far failed to ease fears among holders of the notes, which extended declines on Thursday to trade at less than half their face value. The government asked for a six-month suspension of coupon payments of as much as $120m.
Zambia’s finance ministry and Lazard didn’t respond to messages and telephone calls seeking comment. Rafael Molina, managing partner at Newstate Partners, which is advising the bondholders, declined to comment.
The government will spend 4.7-billion kwacha ($230m) on Eurobond payments in 2021, according to the so-called Yellow Book, which provides a more detailed version of the budget than finance minister Bwalya Ng’andu presented on September 25. That accounts for nearly half of the total 10.3-billion kwacha set aside for external interest payments.
The government budgeted for Eurobond coupon payments for 2021 in case bondholders rejected its proposed payment standstill, Ng’andu told state television on Sunday.
Still, given other fiscal pressures, Zambia would struggle to meet payments during the grace period it is seeking, according to Irmgard Erasmus, an analyst at NKC African Economics in SA. Zambia’s $1bn Eurobonds due in 2024 fell a ninth straight day and were down 0.9% at 48.845c on the dollar by 4.57pm in London.
“We believe that a distressed-debt exchange for Eurobond holders is inevitable, but considering the short time frame, Zambia has less than two months before being officially classified by ratings agencies as being in default,” Erasmus wrote in a report. “In addition to the very short time period, complications may arise due to the absence of a collective action clause on two of the outstanding Eurobonds, which makes holdouts more likely.”
The copper-exporting nation ran up nearly $12bn in external debt over the past decade, ignoring warnings from the IMF over the past three years that it was at high risk of debt distress.
Zambia plans to ask holders of its three Eurobonds totalling $3bn on October 20 to agree formally to the six-month interest payment suspension, starting on October 14. A coupon payment of $42.5m is due on that date, though the country has no principal payments due until September 2022, when a $750m note matures.
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