The Zambian government has announced that it has reached an agreement with a consortium of private creditors to restructure $3 billion of its international bonds, marking a significant step towards resolving its long-standing debt issues.
The latest agreement proposes consolidating Zambia’s three existing instruments into two amortising bonds, one of which would offer higher repayments should the country’s economic prospects and debt management capabilities improve.
Zambia’s President, Hakainde Hichilema, expressed his satisfaction with the agreement on social media, stating, “History has been made! We are pleased to announce the agreement with our Eurobond holders.”
Zambia defaulted on its debt three years ago and has been undergoing debt restructuring under the Common Framework, a G20 initiative aimed at facilitating timely and seamless debt restructurings for low-income countries.
However, the process has faced significant delays, hindering much-needed investments, stalling economic growth, and weighing on local financial markets. The situation has been exacerbated by a severe drought declared a national disaster, impacting hydropower generation and food production.
In 2022, Zambia secured a $1.3 billion loan from the International Monetary Fund (IMF), contingent upon restructuring its debt with other creditors.
Following the announcement of the agreement, Zambia’s sovereign bonds experienced an uptick, with the 2027 note rising by 1.8 cents to 73.85 cents on the dollar.
While Monday’s proposal resembles a preliminary deal reached late last year, there have been some substantive changes. Bondholders’ overall claims against Zambia increased to $3.98 billion due to accrued unpaid interest. However, under the new agreement, investors will receive bonds with a face value of $3.05 billion, a reduction from the $3.135 billion proposed in October.
Under the terms of the agreement, bondholders will forgo approximately $840 million of their claims, compared to $700 million in the previous proposal. Cash flow relief remains consistent at around $2.5 billion during the IMF programme period.
The Zambian government confirmed that the agreed terms were compatible with official creditors’ requirements regarding comparability of treatment.
An IMF spokesperson confirmed via email that the agreement is consistent with the parameters of the IMF programme. Bondholders, including Amia Capital, Amundi, Farallon, Greylock Capital Management, and BlueBay Asset Management, welcomed the agreement in a separate statement, expressing satisfaction with the conclusive and definitive resolution.
The Zambian government also ensured that certain other creditors would not receive a more favourable recovery in the restructuring on net present value terms and included a loss reinstatement clause in case of a default during the existing IMF programme term.
