Zambia: Hard default appears imminent
- Ministry of Finance confirms that it will continue with debt standstill absent creditor approval
- Dispute with China on treatment of arrears is preventing Chinese relief, which is in turn preventing commercial relief
- Restructuring negotiations are likely to prove tricky
The Ministry of Finance said in a press release today (here) that “Should Zambia fail to reach an agreement with its commercial creditors (including holders of its Eurobonds) on the terms of the appropriate standstills, as previously stated, the Republic with its limited fiscal space will be unable to make payments and, therefore, fail to forestall accumulating arrears.”
This implies that the government does not intend to pay the US$42.5mn coupon due on its 2024 eurobond tomorrow despite its failure to receive approval from creditors on its request for a six-month repayment standstill (see here). If agreement cannot be reached before the 30-day grace period expires on 13 November (which we deem unlikely), then Zambia will effectively be pushed into a “hard default”.
While Zambia “remain(s) committed to ensuring equitable treatment of all our creditors and ensuring transparency in our engagements,” a group of creditors holding 40% of outstanding eurobonds (a blocking stake) said in a statement to government on 30 September that it was “unable to provide a positive response” until a number of concerns had been addressed.
Foremost among them is the demand for more concrete information on the scale of outstanding debt to China, and assurances that the government will treat that debt on equal terms with creditors. However, an article in the Financial Times today suggests that Zambia is having trouble closing a deal on relief with a range of official and commercial Chinese creditors (see here).
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