Zambia clinches milestone debt deal with bondholders
Zambia's ongoing debt crisis may be on the path to resolution as the government has reached a preliminary agreement with a steering committee representing holders of $3 billion in Eurobonds. This significant development comes three years after Zambia initially defaulted on these loans.
The agreement in principle focuses on the key commercial terms for restructuring the 2022, 2024, and 2027 bonds. As part of the deal, approximately $700 million in claims will be permanently waived, and Zambia will receive approximately $2.5 billion in cash flow relief through reduced debt-servicing payments, particularly during the period of the nation's International Monetary Fund (IMF) program.
The restructuring involves transforming the three existing bonds into two new amortizing bonds with varying maturity dates, contingent on Zambia's economic performance. In any scenario, this agreement entails an 18% nominal haircut, marking a significant step toward resolving the Zambia debt crisis.
Key Takeaways
Zambia's debt crisis began in late 2020 when it became the first African country to default during the COVID-19 pandemic. The subsequent debt restructuring process faced significant delays, with international bondholders feeling excluded as the initial negotiations primarily involved bilateral creditors, including China. The recent agreement in principle, which outlines the key terms for restructuring the 2022, 2024, and 2027 bonds, has had a positive impact on its international bonds. Following the agreement, these bonds experienced a notable increase in value, with some rising by as much as 3.5 cents on the dollar, as indicated by data from Tradeweb and MarketAxess. The 2024 and 2027 bonds are now being bid at or just below 60 cents on the dollar. The proposed restructuring plan encompasses a $700 million debt write-off and provides $2.5 billion in cash flow relief, a crucial development during Zambia's 38-month, $1.3 billion IMF program, which gained approval in September 2022. This agreement marks a significant step towards resolving Zambia's debt crisis.
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