Zambia will not pay the overdue Eurobond coupon before a grace period expires at the end of the day, the minister told Reuters.
Zambia will not pay an overdue Eurobond coupon before a 30-day grace period expires at the end of the day, the finance minister told Reuters news agency on Friday, putting the country on track to become Africa’s first sovereign default in the era of the pandemic.
Zambia missed the payment of a $ 42.5 million coupon on one of its dollar-denominated sovereign bonds last month.
The government had asked bondholders to grant it a deferral of interest payments until April as it grappled with the double burden of tackling the pandemic and a failing economy. But creditors rejected the request earlier on Friday.
“They will not support the status quo or the solicitation of consent and, given our precarious position which requires us to treat all creditors equally, we have no alternative but to accumulate arrears. “said Finance Minister Bwalya Ng’andu.
Zambia’s Committee of External Bondholders – a large group of creditors holding over 40% of Zambian bonds and a blocking stake in each issue – had previously indicated it would reject the government’s plan, citing a lack of transparency and communication.
If Zambia does not pay its coupon, it will be classified as defaulting on its three outstanding Eurobonds with a face value of $ 3 billion.
Zambia’s dollar bonds traded around half a cent on the dollar on Friday, giving up some of their earlier gains and dropping from 44 to 46 cents on the dollar, according to Tradeweb data.
With a number of African countries struggling with unsustainable debt, Zambia is being closely watched as a test case for how borrowers and creditors might navigate a larger finance debt crisis.
“The government’s position is that we must treat all creditors equally,” Ng’andu said. “We continue to engage with bondholders through our advisers, and hope the engagement process will lead to a solution along the way.”
The minister said Zambia’s negotiations with the International Monetary Fund were also continuing. He declined to give more details.
Referring to an agreement reached with the Development Bank of China last month, he said the bank had granted a six-month grace period on interest payments and a three-year grace period on payments from the bank. principal for a loan. Ng’andu did not disclose the amount of this loan.
Even before the coronavirus pandemic caused a global economic slowdown, Zambia was grappling with growing debt.
Data from Lusaka showed that Zambia’s total external debt stock stood at $ 4.8 billion, or 18% of gross domestic product (GDP), at the end of 2014. Five years later , it had more than doubled to reach $ 11.2 billion, or 48% of GDP. The IMF expects an increase of nearly 70% by the end of the year.
Eurobonds are not its only debt. Zambia owes some $ 3.5 billion in bilateral debt, $ 2.1 billion to multilateral agencies and $ 2.9 billion to other commercial lenders. He owes around $ 3 billion to China and Chinese entities.
The Zambian kwacha has fallen by nearly a third since the start of the year, adding to the pressure.