Trouble in Paradise-IMF Rejects Eurobond Deal
The International Monetary Fund (IMF) and other bilateral partners have rejected Zambia’s proposed debt restructuring settlement with the Eurobond bondholders.
Zambia obtained $3billion Eurobond commercial loan which now stands at $3.8billion.
Government announced recently that it had reached an agreement between the steering committee of the ad hoc creditor committee of Eurobond holders for the three Eurobonds maturing in 2022, 2024 and 2027 to bring the restructuring near to closure.
The proposed debt exchange entails an 18% haircut to bondholders’ current notional claims of over USD3.8 billion.
IMF says this very expensive and has proposed instead a 40% haircut.
Once Zambia has reached an agreement with creditors on restructuring its Eurobonds and assessment is done that it has completed that restructuring process, it would be moved from its Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) out of ‘Restricted Default’ (RD) and credit rating agencies will assign a rating based on a forward-looking assessment of the sovereign’s willingness and capacity to honour its foreign-currency debt obligations.
As with the June agreement with the Official Creditor Committee (OCC), the deal included a contingency element offering benefits to creditors.
The remaining claims were restructured into two bonds, one of which has a step-up in payments and an earlier maturity.
The IMF confirmed in July that implementing the Official Creditor Committee agreement and a comparable agreement with private creditors (Eurobond and others) would enable Zambia’s debt to be assessed as sustainable, with a moderate risk of debt distress over the medium term, under both the baseline and upside scenario.
Paris Club as lenders in the last decade—agreed to coordinate to provide debt relief consistent with the debtor’s capacity to pay and maintain essential spending needs.
But so far, only three countries—Chad, Ethiopia, and Zambia—have made requests for debt relief under the G20 Common Framework.
The Framework is the only multilateral mechanism for forgiving and restructuring sovereign debt.
However the G20 Debt Service Suspension Initiative (DSSI) which has allowed Zambia and 38 other countries not to service their debt since December 2020, will expire at the end of this year forcing participating countries including Zambia to resume debt service payments.
Written by; Amb. Emmanuel Mwamba