ZAMBIA
REPUBLIC SEEKS DEBT ADVISERSZAMBIAûISûLOOKINGûFORûlNANCIALûADVISERSûTOûHELPû
ensure the sustainability of its debt and manage
any loans maturing from next year and beyond,
THEûMINISTRYûOFûlNANCEûSAIDûONû4UESDAY
Even before the novel coronavirus
outbreak forced lockdowns across the globe,which have had a major impact on demand
for raw materials, Zambia, Africa’s second
largest copper producer had been wrestling
with a growing public debt.
Finance ministry spokesman Chileshe
Kandeta told Reuters the government had
issued a request for proposals to provide
advisory services on liability management
and debt.
Zambia’s external debt had increased to
US$11.2bn from US$10.23bn at the end ofJune 2019, Finance Minister Bwalya Ng’andu
said earlier in March.
The depreciation of the kwacha by over
20% against the US dollar has exacerbated
THEûlSCALûPLIGHTûFACEDûBYûTHEûCOUNTRY
Zambia has three bonds issued in US
dollars, with US$3bn principal due in total.
Its US$1.25bn of 8.97% 2027 bonds were
trading at around 70 cents in the dollar
during January and February but since the
coronavirus crisis emerged as a major issue
in March have dropped to just 31.60 cents.
The US$1bn 8.5% 2024 bond issue is due to
pay a coupon on April 14.
The request for proposals was issued as
part of the Zambia’s asset liability
management exercise, including project
RESCOPINGûANDûRElNANCINGûOFû:AMBIASû
Eurobonds, Kandeta said.
“We intend to use the services of the
advisers as we have done in the past and in
line with signed agreements with lenders,”
Kandeta said.
Eurobonds make only a small part of the
country’s debt, with the largest creditor
understood to be bilateral lender China,
which is a major importer of Zambian
copper.
How Zambia addresses the latter’s debt
will be crucial in the process, said one
adviser who was sent the RFP document.
“China has agreed to extend its terms
with other countries but this is more
SIGNIlCANT vûHEûSAIDû!DVISERSûHAVEûUNTILû
April 17 to submit proposals.
Until 2018, Zambia retained two
commercial banks to provide advisory
services on any asset liability exercises on its
debt portfolio, Kandeta said.
He said the government had no intention
of unilaterally restructuring its debt without
consulting creditors and would respect
agreements.REGIONAL
AFRICA SEEKS BACKING ON DEBT RELIEF!FRICANûlNANCEûMINISTERSûWANTû
International Monetary Fund, World Bank
and EU support for bilateral, multilateral
and commercial debt relief amid the
coronavirus crisis, the UN Economic
Commission for Africa (UNECA) said.
Africa is facing a perfect storm of an
impending global economic downturn,
plummeting oil and commodity prices and
weaker currencies, which threaten to
imperil its coronavirus response.
4HEûCONTINENTSûCONlRMEDûCORONAVIRUSû
cases had climbed to at least 5,300 by
Tuesday, with more than 170 recorded
deaths, according to a Reuters tally. And
WHILEûTHOSEûlGURESûCONSTITUTEûJUSTûAûFRACTIONû70 International Financing Review April 4 2020Private creditors face
payment delays from
surging EM distressed debt
SOVEREIGNS Wave of distressed debt from emerging markets expectedPrivate sector creditors face potential delays
to payments and lower recovery values from
a wave of distressed sovereign debt from
emerging markets hammered by the coronavirus
pandemic.
Around US$190bn in emerging market
sovereign bonds are trading at a 1,000bp
premium above benchmark Treasuries,
considered the threshold for debt to be classed
as distressed, according to ING analysts.
Against this backdrop, ZAMBIA and KYRGYZSTAN
are among the latest countries taking steps
to restructure their debt, joining ARGENTINA,
LEBANON and VENEZUELA, which were already in
distress before the current crisis.
More could join with around 21% of emerging
market sovereign dollar bonds trading at a yield
above 10%, signalling rising borrowing costs.
“Governments already struggling under
increasing costs relating to the outbreak may find it
politically untenable to repay international creditors
when their population is suffering,” said Jim Ho, a
debt restructuring lawyer at Cleary Gottlieb.
“If a suspension of debt payments becomes
inevitable as the crisis worsens, the goal is to
ensure that any debt restructuring is done in an
orderly fashion.”
The list of countries seeking help is poised
to grow as the World Bank and the IMF urged
official bilateral creditors to provide debt relief to
help lower-income nations struggling with the
effects of the coronavirus.
Tellimer estimates that around 22
International Development Association (IDA)
countries have international bonds outstanding,
with just over half of them in Sub-Saharan Africa,
amounting to a total stock of nearly US$60bn.
So far, the IMF and World Bank have only
asked bilateral lenders for some debt relief.
However, calls for private investors to bear a
share of the burden will probably increase intothe IMF Spring Meetings on April 16–17, said
Trieu Pham, EM sovereign debt strategist at ING,
noting that the UN Economic Commission for
Africa had called for sovereign bondholders to be
part of any solution.
A financing backstop by the IMF generally
requires private creditors to take a hit, as is the
case in Argentina.
Fund managers may have to share the pain
in any deal to help some debt-laden countries,
particularly those also facing a hit from lower
commodity prices, said Nachu Chockalingam,
senior emerging market debt portfolio manager
at Federated Hermes.
“All creditors will have to be at the negotiating
table at some point as some of these countries
are so highly indebted and facing issues on the
economic side,” she said.
For private creditors that could mean partial
debt relief, conversions into longer-term and
lower interest instruments, postponing 2020
bond redemptions by a year and waiving interest
payments this year, said Pham.
How this is carried out will be tricky.
One option, the establishment of a bankruptcy
court for countries, was previously considered
by the IMF in the early 2000s but floundered
because of lack of political support.
Another is to fall back on so-called collective
action clauses used in some existing bond
contracts to stop a minority of dissenting
creditors from blocking a settlement agreed by
the majority, Ho said.
“Extraordinary circumstances call for
extraordinary measures,” he said.
“If there were to be widespread defaults,
we may need to consider some kind of
legislative solution in order to ensure an
orderly restructuring for all debtors in the same
situation.”
Tom Arnold8 IFR Emerging 2327 p 67 - XX.indd 70 03 / 04 / 2020 19 : 21 : 02