Zambia bondholders reject payment deferral; default looms3 min read . Updated: 13 Nov 2020, 07:25 PM IST
- Zambia missed payment of a $42.5 million coupon on one of its dollar-denominated sovereign bonds last month
- Zambia's total external debt stock stood at $4.8 billion, or 18% of gross domestic product, by the end of 2014 while five years later, it had more than doubled to $11.2 billion, or 48% of GDP
Holders of Zambia's Eurobonds rejected a request from the government to defer interest payments, the finance ministry said in a statement on Friday, putting it on the brink of becoming Africa's first COVID-era sovereign default.
Zambia missed payment of a $42.5 million coupon on one of its dollar-denominated sovereign bonds last month. It has until the end of Friday to pay, at which point a 30-day grace period will expire.
Bondholders told Reuters they still hoped Zambia would pay, and on Friday Vice President Inonge Wina told lawmakers the country would not default. However, Zambian officials did not say whether the payment had been initiated.
Zambia's government had requested that its Eurobond holders grant it a deferral of interest payments until April as it struggled with the dual burdens of fighting the pandemic and a limping economy.
"While Government regrets that the bondholders did not approve the requests made by Zambia in good faith, we remain committed to finding a consensual and collaborative resolution to debt sustainability issues," the finance ministry statement said.
The Zambia External Bondholder Committee -- a large group of creditors holding more than 40% across all Zambia's bonds and a blocking stake in each issue -- had already indicated it would reject the government's plan, citing a lack of transparency and communication.
"Investors are really miffed that Zambia had three years to go to the International Monetary Fund and get some funds, but refused to let the fund into the country to avoid painful reforms," said Lutz Roehmeyer, CIO at Capitulum Asset Management, who voted to support the payment deferral but is not part of the group.
The government said it was doing everything possible to avoid a sovereign debt default, though it has also pledged to seek similar terms from all its external creditors on debt service suspension.
"This country is not ready to default, and I can assure the honourable members that this country will not default," Vice President Wina told lawmakers during questions and answers in parliament on Friday.
Zambia's finance ministry did not immediately respond to a request for comment.
If Zambia does not pay its coupon, it would be classified as a default on its three outstanding Eurobonds with a face value of $3 billion.
Even before the coronavirus pandemic caused a global economic slowdown, Zambia was struggling with mounting debt.
Data from Lusaka showed that Zambia's total external debt stock stood at $4.8 billion, or 18% of gross domestic product, by the end of 2014. Five years later, it had more than doubled to $11.2 billion, or 48% of GDP. The IMF predicts a rise to nearly 70% by year's end.
The Eurobonds are not its only debt. Zambia owes some $3.5 billion in bilateral debt, $2.1 billion to multilaterals and $2.9 billion to other commercial lenders. It owes about $3 billion to China and Chinese entities.
Zambia's kwacha has tumbled nearly a third since the start of the year, adding to the pressure.
Zambia's dollar bonds gained around 1 cent on the dollar on Friday and are trading at 45 to 47 cents on the dollar, according to Tradeweb data., ,
With a number of African countries struggling with unsustainable debt, Zambia is being closely watched as a test case for how borrowers and creditors might navigate a broader debt crisis.
"African countries need to come to some resolution quickly in order for them to also deal with other pressing health and economic issues that COVID has exacerbated," said Jacqueline Musiitwa, managing partner at Hoja Law Group.
"Right now, there just needs to be more transparency in general to make sure that Africa finds a solution, not only for the short term but also for the long term."
This story has been published from a wire agency feed without modifications to the text.