Zambia nears default with bondholders set to refuse relief

The IMF warned in 2018 that Zambia was at high risk of debt distress. (Photo by Per-Anders Pettersson/Getty Images)
The IMF warned in 2018 that Zambia was at high risk of debt distress. (Photo by Per-Anders Pettersson/Getty Images)
  • Zambia's request for an interest-payment holiday could make it the first African sovereign defaulter since the onset of the coronavirus pandemic.
  • Zambia is seeking the relief from private creditors as part of the G-20's Debt Servicing Suspension Initiative for low-income countries struggling from the economic fallout of the pandemic.
  • The world's largest economies will on Friday decide on a common framework to co-ordinate future debt restructuring among private and official lenders.


A key bondholder group is set to reject Zambia's request for an interest-payment holiday, putting the country on course to become the first African sovereign defaulter since the onset of the coronavirus pandemic.

There is consensus among the so-called Zambia External Bondholder Committee to refuse the proposal, with a voting deadline of Wednesday ahead of Friday's meeting with creditors, according to two people with direct knowledge of the matter who asked not to be identified because they’re not authorized to speak publicly.

The committee's members hold about 40% of the southern African nation’s $3 billion of outstanding dollar bonds, and at least 25% of each, enough to vote down the proposal. They abstained from previous votes that had been set for October 20, prompting the adjournment to November 13 to allow the government more time to convince bondholders to accept the proposed six-month payment freeze.

Zambia said it's seeking equal relief from all external creditors, and the government's approach to private lenders and mainly state-owned Chinese lenders could set a precedent for a growing number of countries seeking to reprofile debts they can't afford to service as the pandemic ravages their economies. The world's largest economies will on Friday decide on a common framework to co-ordinate future debt restructuring among private and official lenders.

The finance ministry has failed to provide transparency on its debt to Chinese lenders or inform bondholders of any progress in reaching a deal with the International Monetary Fund on an economic programme, one of the people said. There has also been no direct talks between the government and bondholders, the person said.

Zambia's finance ministry didn’t respond to six calls and text messages seeking comment.

Chinese lenders

The government of Africa's second-biggest copper producer has already missed a $42.5 million coupon payment scheduled for October 14 on its $1 billion bonds due 2024, and a 30-day grace period ends on Friday. Zambia already said it won't pay if it isn't granted a standstill, which would trigger a default giving bondholders the right to demand immediate repayment of the capital.

S&P Global Ratings last month cut its assessment of Zambia's debt to "selective default".

The 2024 bonds were little changed on Wednesday after falling 0.5% on Tuesday to 45.6 cents on the dollar. Zambia’s kwacha has weakened 36% against the U.S. currency this year.

While Zambia has said it's seeking the relief from private creditors as part of the G-20's Debt Servicing Suspension Initiative for low-income countries struggling from the economic fallout of the pandemic, the nation’s debt troubles have been building for years.

The IMF warned in 2018 that Zambia was at high risk of debt distress, and the government continued adding to its external debt, which has climbed to about $12 billion. It could reach 120% of gross domestic product by year-end, the Washington-based lender's forecasts show.

President Edgar Lungu's government has relied on borrowing from mainly Chinese lenders to fund an infrastructure program. Private and government banks in China account for more than a quarter of Zambia's external debt, according to S&P. Finance Minister Bwalya Ng'andu said in May the government had been over-ambitious in contracting debt, as it seeks to restructure foreign borrowing to qualify for an IMF bailout.

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