More Warnings On Debt

Stanbic Bank has cautioned that the government’s proposed timeline for restructuring may be too ambitious. 

Last month government asked investors for relief and the suspension of debt service payments for a period of six months. It asked bondholders with around $3 billion in international bonds (the Eurobonds) to approve the deferral of interest payments amounting to almost $120 million until April 2021. In doing so it is the first African country to ask bondholders for relief during the coronavirus pandemic. Following the move the Eurobonds declined and the Kwacha weakened to a record low against the dollar. 

Assessing the move Stanbic’s Africa Research team have stated, “The Zambian government approached Eurobond creditors along with other commercial lenders for a 6-month interest payment deferral. It appears that the government intends to use this 6-m period to secure an IMF deal as well as conclude restructuring negotiations with all external commercial debt holders… Nonetheless, we still think that the government’s proposed timeline may be too ambitious.”  

The relevant meetings for each Eurobond will take place on 20 Oct. However, Zambia’s next coupon payment date is 14 Oct. An initial reaction from a committee representing US and European holders of around 40% of the bonds stated that creditors were “unable to provide a positive response” given the “absence of clarity on a number of issues”. Lack of communication and transparency were identified as a major obstacle. 

Zambia has taken on nearly USD 12bn in debt over the past decade. According to Stanbic, total public debt reached USD 19.9bn, or 112% of GDP, at the end of June. Domestic debt accounts for USD 5.7bn, with public and publicly guaranteed external debt at USD 14.2bn.  

Zambia’s credit profile has been tarnished by “allegations of graft, misappropriation of funds and poor audit results on project loans,” according to NKC African Economics.