Zambia has taken a significant step towards resolving its long-standing debt woes, as it secured a $3 billion Eurobond restructuring deal with a group of private creditors.
This agreement marks a major breakthrough for the country and brings it closer to emerging from its debt rework, which has been delayed for an extended period.
Under the terms of the latest deal, Zambia will exchange its three existing instruments for two amortising bonds. The first bond will have higher repayments if the country’s economic outlook improves and it demonstrates an increased capability of dealing with its debt burden.
This arrangement provides a pathway for Zambia to gradually recover from its financial challenges and regain stability.
President Hakainde Hichilema expressed his delight on social media, stating, “History has been made! We are pleased to announce the agreement with our Eurobond holders.” This development is a significant achievement for the country, as it paves the way for further progress in its debt restructuring efforts.
Zambia’s debt troubles began over three years ago when it defaulted on its international bonds. Since then, the country has been working on its debt rework under the Common Framework, a G20 platform that aims to facilitate debt overhauls for low-income countries. Zambia is considered a test case for this framework, highlighting the importance of finding a swift and smooth resolution.
However, the debt restructuring process has been marred by significant delays, which have had adverse effects on vital investments, economic growth, and local financial markets. The situation was further compounded by a devastating drought, which was declared a national disaster and had severe implications for hydropower generation and food production.
To alleviate some of the financial pressure, Zambia secured a $1.3 billion loan from the International Monetary Fund in 2022. This loan stipulated the need for debt restructuring with other creditors. The agreement reached with the private creditors is a crucial step towards meeting this requirement and ensuring a more sustainable future for the southern African nation.
The market response to the announcement of the Eurobond restructuring deal was positive, with Zambia’s sovereign bonds experiencing a rise. The 2027 note, in particular, saw an increase of 1.8 cents to 73.85 cents on the dollar.
Monday’s proposal for Zambia’s debt restructuring bears similarities to a preliminary deal reached last year, which was subsequently rejected by official creditors, including China and France. However, there are notable changes in substance.
The total bondholders claim against the country has increased to $3.98 billion due to unpaid interest. Nevertheless, under the new agreement, investors will receive bonds with a face value of $3.05 billion, which marks a reduction from the $3.135 billion proposed in October.
Additionally, bondholders will have to forego approximately $840 million of their claims, compared to $700 million in the previous proposal. Despite these concessions, the statement assures that the cash flow relief will remain at approximately $2.5 billion during the IMF program period.
The government has also received confirmation from official creditors that the agreed terms are compatible with the principle of comparability of treatment, ensuring fairness between official creditor groups and non-members.
Moreover, the terms proposed by Zambia have been pre-approved by official creditors, further adding credibility to the proposal.
Zambia has taken a significant step towards resolving its long-standing debt woes, as it secured a $3 billion Eurobond restructuring deal with a group of private creditors. This agreement marks a major breakthrough for the country and brings it closer to emerging from its debt rework, which has been delayed for an extended period.
Under the terms of the latest deal, Zambia will exchange its three existing instruments for two amortising bonds. The first bond will have higher repayments if the country’s economic outlook improves and it demonstrates an increased capability of dealing with its debt burden. This arrangement provides a pathway for Zambia to gradually recover from its financial challenges and regain stability.
President Hakainde Hichilema expressed his delight on social media, stating, “History has been made! We are pleased to announce the agreement with our Eurobond holders.” This development is a significant achievement for the country, as it paves the way for further progress in its debt restructuring efforts.
Zambia’s debt troubles began over three years ago when it defaulted on its international bonds. Since then, the country has been working on its debt rework under the Common Framework, a G20 platform that aims to facilitate debt overhauls for low-income countries. Zambia is considered a test case for this framework, highlighting the importance of finding a swift and smooth resolution.
However, the debt restructuring process has been marred by significant delays, which have had adverse effects on vital investments, economic growth, and local financial markets. The situation was further compounded by a devastating drought, which was declared a national disaster and had severe implications for hydropower generation and food production.
To alleviate some of the financial pressure, Zambia secured a $1.3 billion loan from the International Monetary Fund in 2022. This loan stipulated the need for debt restructuring with other creditors. The agreement reached with the private creditors is a crucial step towards meeting this requirement and ensuring a more sustainable future for the southern African nation.
The market response to the announcement of the Eurobond restructuring deal was positive, with Zambia’s sovereign bonds experiencing a rise. The 2027 note, in particular, saw an increase of 1.8 cents to 73.85 cents on the dollar.
Monday’s proposal for Zambia’s debt restructuring bears similarities to a preliminary deal reached last year, which was subsequently rejected by official creditors, including China and France. However, there are notable changes in substance.
The total bondholders claim against the country has increased to $3.98 billion due to unpaid interest. Nevertheless, under the new agreement, investors will receive bonds with a face value of $3.05 billion, which marks a reduction from the $3.135 billion proposed in October.
Additionally, bondholders will have to forego approximately $840 million of their claims, compared to $700 million in the previous proposal. Despite these concessions, the statement assures that the cash flow relief will remain at approximately $2.5 billion during the IMF program period.
The government has also received confirmation from official creditors that the agreed terms are compatible with the principle of comparability of treatment, ensuring fairness between official creditor groups and non-members.
Moreover, the terms proposed by Zambia have been pre-approved by official creditors, further adding credibility to the proposal.
In the past 2-3 weeks, there have been several adjustments and changes made to reach a resolution that satisfies both sides involved in the negotiation. The Official Creditor Committee (OCC) confirmed that the agreement meets their standards for comparability of treatment, although it required compromises from both parties.
The International Monetary Fund (IMF), through a spokesperson, stated that the agreement aligns with the parameters of their program. Bondholders also expressed their satisfaction with the agreement in a separate statement.
These bondholders, including Amia Capital, Amundi, Farallon, Greylock Capital Management, and BlueBay Asset Management, stated that they are pleased to finally have a definitive and conclusive agreement that is supported by all stakeholders, including the government.
The government, in turn, declared that it will ensure that other creditors do not receive a better recovery in the restructuring on net present value terms. Additionally, the statement mentioned the inclusion of a loss reinstatement clause in case Zambia were to default during the existing IMF program.
As of now, there has been no response from the Paris Club, an organization composed of wealthy creditor nations and managed by French Treasury officials.
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