Zambia official creditors, IMF voice ‘reservations’ on bondholder deal

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Zambia’s official creditors and the International Monetary Fund have “expressed reservations” about a debt restructuring deal the government has reached in principle with an international bondholder group, the finance ministry said Friday.

Zambia and the bondholder group’s steering committee are continuing talks after the official creditor committee and the IMF voiced their doubts during discussions over the “last several days”, the ministry said in a statement, not giving any further detail on the nature of the reservations.

The discussions between the steering committee and the government are taking place under extended non-disclosure agreements, a source familiar with the process said, asking not to be identified as the talks are private.

Zambia defaulted on its external debts three years ago and finally clinched a deal with a bondholder group in late October, less than two weeks after reaching a restructuring agreement with its official creditors, which include China and members of the Paris Club of creditor nations.

The debt rework has been taking place under the G20’s Common Framework, which has been criticised for long delays and a lack of significant results.

Debtor countries are meant to agree comparable restructuring deals with official and commercial creditors under the process, which was established in 2020 in response to the COVID-19 pandemic.

A spokesperson for the bondholder steering committee declined to comment. The IMF and the Paris Club, the secretariat for developed creditor countries, did not immediately reply to a request for comment.

Zambia’s existing three international bonds totalling $3 billion had rallied after the bondholder deal was announced. The proposal foresees issuance two new “amortising” bonds scheduled to mature in 2035 and 2053 and together worth $3.135 billion – more than the face value of the current outstanding Eurobond debt.

If the copper producers’ economy performs better than expected during a 2026-2028 monitoring phase, the maturity of the 2053 bond would also be brought forward to 2035 and coupon payments increase.

Some analysts noted that bondholders would be receiving more than $500 million in amortisation for 2024-2025, plus over $100 million in annual interest payments, under the “base case” scenario, while official creditors had granted a three year grace period and lower interest rates than bondholders.

Zambia’s bonds slipped on the news of the IMF and official creditors’ reservations, with the note maturing in 2024 down more than 0.9 cents on the dollar to 63.036 cents at 0858 GMT . The bonds had rallied since the deal in principle was announced.

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