Zambia on Brink of Default as Creditors Set to Reject Relief
Zambia Stares Down the Default Barrel With Key Creditors to Vote
Zambia’s Eurobonds rallied after the country’s vice president said it would honor its obligations, hours before creditors were set to meet on a standstill proposal that the country requested to give it breathing space while it restructures its debt.
Holders of its $3 billion in Eurobonds attending meetings at a law firm in London on Friday are expected to reject a government request for a payment holiday after the government last month missed an interest payment on $1 billion of bonds due 2024. A 30-day grace period expires on Friday, and should the vote go against Zambia and it doesn’t pay, it would put the country in default, giving investors the right to demand immediate repayment of the principal.
Should creditors vote against the proposal, Zambia would have until the end of business on Friday to make the coupon payment or formally default. Vice President Inonge Wina told lawmakers on Friday that the nation would meet its obligations, without giving details on the overdue coupon payment. The finance ministry didn’t answer a call or a text message seeking clarification.
“Zambia will not default,” Wina said in response to a question from an opposition member who asked if the government would miss the coupon payment today. “A way forward will be found in meeting Zambia’s obligations to the bondholders and other lenders that supported Zambia in her hour of need.”
Zambia’s 2024 dollar notes rose 0.9% to 46.14 cents on the dollar by 9:09 a.m. in London.
Selective Default
Analysts had been anticipating Zambia wouldn’t make the coupon payment by Friday’s market close, which would prompt ratings companies to formally declare it in default. S&P Global Ratings Services cut Zambia to selective default last month, and Moody’s Investors Service and Fitch Ratings is yet to make a pronouncement.
“Zambia is mere hours away from being declared in default,” said Irmgard Erasmus, an economist at NKC Africa Economics in Paarl, near Cape Town. Zambia’s souring relationships with creditors and multilateral organizations after years of spendthrift policies and corruption allegations “create a more hostile environment in which to negotiate a complex restructuring,” she said in a note Thursday.
Finance Minister Bwalya Ng’andu has said Zambia needs breathing space from all external creditors while it negotiates a comprehensive reprofiling of its debt. Bondholders are skeptical and have demanded more transparency from the government of Africa’s number-two copper producer, particularly with regard to debt due to Chinese lenders. They also want to see progress in reaching a deal with the International Monetary Fund on an economic recovery program.
No Progress
The government has failed to show progress on either, according to Patrick Curran, an economist with Tellimer, an emerging-markets research firm. The finance ministry didn’t respond to multiple calls and messages seeking comment.
While the pandemic has worsened Zambia’s economic troubles, the government ignored warnings about its borrowing for years. External debt has soared to about $12 billion, and total government borrowing will reach 120% of gross domestic product this year.
Also on Friday, creditors from the Group of 20 largest economies are set to announce a so-called “common framework”, which could provide a road map for dealing with official and private creditors of poor countries struggling to meet their obligations.
©2020 Bloomberg L.P.