Picture: REUTERS
Picture: REUTERS

Lusaka  — Zambia has reached a deal to defer debt repayments that were due in October on a loan from the China Development Bank (CDB), Zambia's government said, without giving the size of the loan or the debt repayments that were due.

Zambia owed CDB about $391m at the end of 2019 — about a tenth of the $3bn it owes Chinese entities — according to the finance ministry. It was not clear whether the loan in question covers all of this debt or a fraction of it.

China holds about a quarter of Zambia's foreign debt.

“Under the terms of our agreement with CDB, interest and principal due on October 25 2020 will be deferred,” the government said in a statement. “The deferred interest payment is now payable on  April 25 2021 and the deferred principal rescheduled over the life of the facility.”

Zambia, one of the world's top copper producers, has been plunged into a debt crisis as the Covid-19 pandemic hurt its economy and exposed its public borrowing as unsustainable.

Zambia's bonds showed little reaction to the news. They were already showing signs of strain before the pandemic struck in 2020 but are now trading at just 40% of their face value.

The government missed a $42.5m coupon payment on one of its Eurobonds that was due on October 14 but has a 30-day grace period before it goes into default.

It has asked Eurobond holders to defer interest payments until April 2021, but they have so far rejected the request.

One of the sticking points has been whether other key lenders such as China would also agree to reschedule repayments.

“This is a good step in the right direction but they still need to do more to appease the creditor group,” said one of the members of the Zambia External Bondholder Committee, Kevin Daly at Aberdeen Standard Investments in London.

“It is still piecemeal and what you need is something comprehensive.”

He also said it was not clear whether the announced deal included a deferral of arrears payments believed to have become an obstacle to some Chinese entities participating in debt relief for Zambia.

Zambia's external debt is nearly $12bn, including $3bn of outstanding Eurobonds, $3.5bn of bilateral debt, $2.9bn of other commercial debt and $2.1bn owed to multilateral institutions.

On Wednesday, the World Bank said  it has sanctioned a state Chinese state electric engineering group and its subsidiary over fraudulent practices in a power project in Zambia, setting out new conditions for them to participate in bank-financed projects.

The action bars China Electric Design and Research Institute from participating in bank financed projects for up to 18 months, with the ability to meet new compliance conditions. The firm's parent company, China National Electric Engineering, was allowed to continue to participate in projects under a settlement agreement, but could be banned if it fails to meet agreed conditions, the bank said.

Reuters

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