Zambia strikes preliminary deal on $ 3 b international bond rework

Tuesday, 26 March 2024 02:24 - - {{hitsCtrl.values.hits}}

‘History has been made,’ President says, bondholders welcome restructuring accord
Zambia defaulted on debt three years ago

Zambia said on Monday that it had reached an agreement with a group of private creditors on restructuring $ 3 billion of its international bonds - a major step that brings the country closer to emerging from its long-delayed debt rework.

A Reuters report said the latest deal proposes swapping the country’s three existing instruments into two amortising bonds, one of which would deliver higher repayments if the country’s economic outlook and capability of dealing with its debt burden improves.

“History has been made,” the country’s President Hakainde Hichilema said on social media platform X. “We are pleased to announce the agreement with our Eurobond holders.”

Zambia defaulted three years ago and is reworking its debt under the Common Framework, a G20 platform designed to ensure swift and smooth debt overhauls for low-income nations.

But the process has been beset by long delays, which have hamstrung much needed investments, curtailed economic growth and weighed on local financial markets. The situation has worsened amid a devastating drought that has been declared a national disaster and which affects hydropower generation and food production.

Zambia secured a $ 1.3 billion loan from the International Monetary Fund in 2022, which required it to restructure its debt with other creditors.

The country’s sovereign bonds rose after the agreement was announced, with the 2027 note up 1.8 cents to 73.85 cents on the dollar.

Monday’s proposal is in structure much like a preliminary deal that was reached late last year but was then derailed after being rejected by official creditors, which include countries such as China and France.

However, there are some changes in substance. While the overall claim that bondholders have against the country grew to $ 3.98 billion due to accumulated unpaid interest, under the new deal investors will receive bonds with a face value of $ 3.05 billion - a reduction from the $ 135 billion proposed in October.

As per Reuters under the agreement, bondholders would forego approximately $ 840 million of their claims, the statement said, compared to $ 700 million in the previous proposal. Cash flow relief remained the same at around $ 2.5 billion during the IMF program period.

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