The International Monetary Fund logo outside its headquarters in Washington on September 4, 2018. Photograph: Yuri Grebas/Reuters. Obtaining licensing rights
JOHANNESBURG (Reuters) – Zambia suffered a major setback in its debt restructuring efforts after the government said on Monday that a revised agreement to recast a $3 billion Eurobond could not be implemented for now due to objections from official creditors, including China. .
Zambia, the country’s Official Committee of Creditors (OCC) and the International Monetary Fund (IMF) have been at loggerheads over whether the initial agreement reached with a group of bondholders in late October offers similar debt relief to bilateral and commercial lenders. Zambia said the International Monetary Fund had approved a revised deal, but official creditors had rejected it again.
“The External Transactions Coordination Committee, through its co-chairs, has concluded that treatment comparability will not be achieved in the base case scenario, although it will be achieved in the positive case scenario,” the government said in a statement, referring to a two-pronged approach. Which predicted different levels of debt relief depending on the country’s economic performance.
OCC co-chairs China and France said there was no consensus among official creditors on the amount of additional concessions that would be required from bondholders in the base case to comply with the principle of comparable treatment, according to the Zambian government.
The country’s external bondholders’ steering committee said it was deeply concerned by the recent developments and that its latest offer would provide greater debt relief than official creditors on a net present value basis, as well as a principal reduction where official creditors are offering none.
Zambia defaulted on its debt three years ago, and the restructuring process has been delayed. Western officials have accused China of obstructing the process, something China has consistently denied, while international bondholders have complained of being left out of the negotiations.
Zambia’s Eurobonds fell by more than 2.6 cents to the dollar after the statement, TradeWeb data showed.
“The OCC is requesting debt relief from commercial creditors that is materially higher than what the government or the IMF deems necessary to restore debt sustainability,” the Bondholders Committee said in a statement.
“It creates very clear equity issues between creditors and goes well beyond the role envisioned for the OCC under the Common Framework in verifying the comparability of a transaction.”
Zambia’s debt is being restructured under the Common Framework, a process set up in response to COVID-19 by the G20 to bring in China, India and other bilateral creditors who are not members of the Paris Club of creditor nations.
The Common Framework has been heavily criticized because it has not yet provided any debt relief to any country.
Sources familiar with the situation said that the repercussions of the bond restructuring setback will be felt beyond its borders.
“This has absolutely huge implications for the like-for-like treatment of debt,” said a member of the bondholders’ steering committee, who asked to remain anonymous because of the sensitivity of the issue.
“If the OCC had not backed down, the sovereign debt restructuring would have taken a big step backwards,” said a second source familiar with the situation.
Ghana, which is also subject to Common Framework debt treatment, saw its Eurobonds fall by as much as 1.4 cents to the dollar. Sri Lanka, which is restructuring its debt but not in the common framework, saw its bonds fall by more than 0.8 cent.
The Zambian government said an IMF staff assessment found that the first proposed deal with bondholders would have violated the fund’s Debt Sustainability Analysis (DSA) targets.
The debt service-to-government revenue ratio would have been 16.7% in 2024, 2.7 percentage points higher than the 14% target. Meanwhile, the current value of the debt-to-exports ratio was one percentage point higher than the 2027 target, at 85%.
The International Monetary Fund did not immediately respond to a request for comment.
(Reporting by Rachel Savage, Karen Strohecker and Bhargav Acharya), Additional reporting by Mark Jones and Libby George in London, Editing by Alexander Winning, William MacLean and Bernadette Baum
Our standards: Thomson Reuters Trust Principles.