Zambia forges ahead with $3bn international debt restructuring talks

Overseas bondholders of Zambia’s debt have initiated formal discussions with the government to restructure over $3 billion in international bonds, marking a significant stride forward in the debt crisis, as reported by Reuters. Non-disclosure agreements (NDAs) were signed by all parties as of Wednesday, said three sources, who requested anonymity due to the private nature of the discussions.

The Zambian government is anticipated to divulge detailed information to some of its principal international bondholders. These bondholders, members of the creditor committee, are believed to be instrumental in the upcoming debt restructuring negotiations.

This development follows Zambia’s successful debt restructuring agreement with bilateral creditors, including China and the Paris Club. Last month’s deal involved restructuring approximately $6.3 billion of debt, signifying potential progress for other countries such as Ghana and Sri Lanka awaiting similar negotiations.

However, one source emphasised the need to first evaluate Zambia’s revised macroeconomic package. A restriction period of two weeks has been set, with an extension option if mutually agreed by both parties.

Zambia’s three outstanding dollar bonds, due in 2022, 2024, and 2027, are currently trading between 52-57 cents on the dollar. The signing of NDAs, which temporarily prevent bondholders from trading the notes in exchange for non-public information, is the first such occurrence since Zambia’s default in 2020.

The creditor group, guided by Newstate Partners and Weil, Gotshal & Manges, encompasses 15 European and US-based institutions. These institutions collectively hold approximately 45% of Zambia’s Eurobonds. Leading companies such as Amia Capital, Amundi, BlueBay Asset Management, Farallon Capital Management, Greylock Capital, and T. Rowe Price make up the steering committee.

Until now, preliminary conversations between the government and private creditors have been conducted only through their respective financial and legal advisers. Talks will not only address net present value reductions but also explore Zambia’s potential debt carrying capacity enhancement.

The Zambian Civil Society Debt Alliance and Debt Justice predict that Zambia’s private creditors will need to reduce the relative size of debt payments by over 50% to match the agreed debt relief by governments.

Creditors are currently deliberating the inclusion of state-contingent debt instruments, which would facilitate higher payouts based on improved economic conditions, such as gross domestic product, budget, or export revenues.

The mechanism that creditors are considering would involve revamping payments through higher coupons, shorter debt maturities, or a blend of both, without changing capital payments.

The International Monetary Fund’s (IMF) executive board is set to convene on Thursday to complete the first review of Zambia’s $1.3 billion extended fund facility (EFF) programme. Post-review, Zambia will gain access to around $188 million.