Debt Repayment Failure “Unnecessary and Unfortunate” – Zambia External Bondholder Committee

The Zambia External Bondholder Committee has described Government’s decision not to pay the coupon due on Friday last week as “unnecessary and unfortunate,” stating that the failure to pay “risks establishing a more adversarial backdrop to future discussions with bondholders.” 

Following the default Zambia will have to comply with more onerous levels of transparency in order to restructure loans and regain access to global markets. 

The default comes as a result of a missed payment worth $42.5 million on one of the Eurobonds in October. The subsequent 30-day grace period came to an end on Friday 13th November. 

The government owes $3bn in Eurobonds alone and previously asked bondholders for a relief period on interest payments until April 2021. Committee members hold more than 40% of Zambia’s outstanding Eurobonds. In total Zambia owes international creditors an estimated $12bn. 

In the run up to the default bondholders held back on agreement, with analysts citing transparency concerns as a major obstacle to moving forward. Concerns and uncertainty regarding the Government’s handling of Chinese loans were an important factor. More than $3bn has been borrowed from Chinese lenders including China Exim Bank and the China Development Bank. 

In October bondholders demanded answers over an apparent ‘ghost loan’ of over half a billion US dollars taken out by the PF government between December 2019 and January 2020.  

Following the failure to pay the EMEA Credit Derivatives Determinations Committee has been asked to rule whether a ‘failure to pay’ event has occurred, which could pave the way for a payout for bondholders with default insurance.