The southern African nation said it needed “breathing space” to plan a debt restructuring, and asked holders of its three Eurobonds totaling $3 billion to defer interest payments until April. Zambia’s $1 billion of notes due 2024 fell 4.5% in London to 52.46 cents on the dollar on Tuesday, after the government said a coupon payment due Oct. 14 would be included in the proposed suspension.
“Zambia is currently faced with unprecedented liquidity constraints that have been exacerbated by the Covid-19 pandemic,” the government said in an emailed statement Tuesday. “A combination of declining revenues and increased unbudgeted costs caused by the Covid-19 pandemic have resulted in a material impact on the government’s available resources to make timely payments on its indebtedness, leading to increasing debt servicing difficulties.
Zambia had last month secured a debt-suspension deal up to the end of the year from some official creditors. As part of this accord, Zambia was also obliged to seek comparable terms with commercial lenders, according to Mukuli Chikuba, permanent secretary at the finance ministry. Asking for a suspension of interest payments doesn’t amount to default, he said, adding that the government met a coupon payment earlier this month.
“We think that a majority of bondholders will agree to the standstill,” he said in response to emailed questions. The lack of the collective action clauses in Zambia’s 2024 and 2025 bonds “makes it more likely that you are going to see holdouts in the later restructuring process,” he said.
Since copper prices collapsed, Zambia has been in need of relief.