18 Days and Counting Until Zambia’s D-Day (aka Debt Day)

October 27, 2020

In less than three weeks, a group of Zambian bondholders, mostly in New York and London, will reconvene to vote on whether or not to approve Lusaka’s request for a six-month repayment holiday on about $3 billion of Eurobond notes that are coming due.

These private creditors have made their demands to the government clear: give us a plan that clearly shows the extent of Zambian debt to Chinese creditors and provide us with assurances that the International Monetary Fund has agreed to step in with a debt restructuring program. Most importantly, bondholders want to ensure the principle of “equal treatment” is applied to all creditors.

There’s been widespread concern over the lack of transparency on the part of the Chinese and Zambian governments throughout this whole process and that any debt settlement would unfairly benefit Chinese creditors.

Last week, bondholders gave the Zambian finance ministry a brief reprieve until November 13th to come up with a plan. If Zambian officials fail to meet that deadline or provide an unsatisfactory proposal, then it’s almost certain those bondholders will vote against the repayment holiday, prompting the government to formally default on a portion of its debt.

But regardless of what happens next month, the market may have already decided Zambia’s fate. Last month, Fitch Ratings downgraded the country’s credit rating to near junk status and speculated that an upcoming default is likely. And just last week, Standard & Poor’s downgraded the country’s foreign currency rating to “selective default.”

Thex-factor here is that this entire process is taking place in the midst of President Edgar Lungu’s re-election campaign, prompting speculation that the president may avoid the painful economic adjustments that will divert money from key political constituencies to satisfy the country’s creditors.

At this point, no one’s really sure which way this is going to go.

What the Market’s Saying About Zambia, China and the Worsening Debt Crisis

TRANSPARENCY: “The informational asymmetry between creditors – with Eurobond holders in the dark surrounding the extent of indebtedness to China, including the structure and negotiations progress with Beijing – remains a sticky point” — Irmgard Erasmus, a senior financial economist at NKC African Economics (CNBC)

COMMUNICATION: “We and other bondholders have tried very hard to engage with China. It would certainly be beneficial for everyone to have better lines of communication so that we can all collaborate to work toward solutions, rather than the current silence” — Lars Bane, a partner at London-based Farallon Capital Europe LLP (BLOOMBERG)

THE IMF ROLE: “The agendas are not necessarily aligned, and the IMF does not have the legitimacy necessary to be the arbiter. At the end of the day, Chinese banks and private creditors don’t want to be told what to do” — Agatha Kratz, associate director at Rhodium Group (BLOOMBERG)

SUGGESTED READING:

The Financial Times: African debt to China: ‘A major drain on the poorest countries’ by Jonathan Wheatley and Joseph Cotterill
CNBC: Africa could be about to see its first post-Covid default after Zambia skips interest payment by Elliot Smith
Bloomberg: China’s Feud With Bondholders Could Reset Debt Workout Rules by Alonso Soto

The post 18 Days and Counting Until Zambia’s D-Day (aka Debt Day) appeared first on The China Africa Project.

source https://chinaafricaproject.com/2020/10/27/18-days-and-counting-until-zambias-d-day-aka-debt-day/?utm_source=rss&utm_medium=rss&utm_campaign=18-days-and-counting-until-zambias-d-day-aka-debt-day

Search This Blog

Rajpriya Gautam