Picture: 123RF/luzitanija
Picture: 123RF/luzitanija

Maputo/London — Bondholder meetings to vote on Zambia’s request for debt relief were postponed on Tuesday after failing to reach quorums, increasing pressure on the southern African country to reach agreement with its creditors before it falls into default.

The meetings will be reconvened on November 13, according to a regulatory filing. That is also the deadline to make a coupon payment that Zambia skipped on October 14, before it triggers a default that will give bondholders the right to demand immediate repayment of the principal. Zambia said in September it would not be able to meet obligations without a six-month interest-standstill agreement.

The process has been keenly watched by other poor nations seeking debt relief, as well as fixed-income investors worried about where the next potential default may be. While Zambia said it wants to treat commercial and official creditors on an equal basis, bondholders are concerned any relief they grant would be used to service debts owed to Chinese state lenders, which account for as much as a third of its external liabilities.

“No-one is a winner without an agreement,” said Simon Quijano-Evans, the London-based chief economist at Gemcorp Capital. “The real way forward is to increase transparency and adopt a multipronged approach that includes bondholders, the international finance institutions and China, just like Ecuador did.”

Pandemic woes

The coronavirus pandemic added to Zambia’s woes, with the economy forecast to shrink in 2020 for the first time since 1998, but its debt problems started years earlier. Africa’s second-biggest copper producer borrowed heavily since 2012, building up nearly $12bn in external debt and ignoring warnings from the International Monetary Fund (IMF) of growing debt-distress risks.

With 10 months to the next general elections, the government faces a tumultuous path of trying to negotiate deals with private creditors and Chinese state-owned banks, while trying to win favour from the IMF at the same time. Eurobond holders want Zambia to sign up to an economic programme with the IMF before tackling its commercial debt.

“We have no visibility on the use of proceeds if we agree to a debt standstill,” Kevin Daly, a London-based portfolio manager at Aberdeen Standard Investments in London, which holds Zambian Eurobonds, said before the start of Tuesday’s meetings. “We have no clarity on how they intend to restructure their Chinese debt, we have no fiscal framework to ensure debt sustainability, and they are unlikely to reach a deal with the IMF ahead of the elections.”

Zambia’s $1bn of 2024 Eurobonds fell 0.8% to 43.9c on the dollar in London.

Bloomberg

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