By Rachel Savage and Karin Strohecker
JOHANNESBURG/LONDON (Reuters) – Zambia’s official creditors including China rejected a deal the country struck with its international bondholders because they believed its “base case” scenario did not deliver debt relief comparable to what they offered in a separate deal, two sources familiar with the talks said.
Official creditors said the agreement in principle, which the International Monetary Fund (IMF) also rejected, did not comply with “Comparability of Treatment”, said the sources, who declined to be identified as the discussions are private.
Zambia announced on October 26 that it had clinched an agreement in principle with its international bondholders – a key step for the country whose debt rework has been beset by delays since it defaulted in 2020.
The announcement sparked a sharp rally in Zambia’s three outstanding bonds, which has been partially reversed since Zambia said on November 10 that official creditors and the IMF had “expressed reservations” about the deal, sparking fears that the country’s drawn-out default could be extended still further.
Both bondholders and official creditors had proposed extending the maturity of Zambia’s debt and that it be paid back quicker if the country’s economy performs better than expected. The bondholder deal proposed they would be paid more than $700 million before 2026 in the base case, while official creditors had offered a longer three-year grace period.
Bondholders would need to offer more debt relief in the base case scenario for the deal to be acceptable to official creditors and the IMF, one of the sources said.
“There were marginal deviations in positions and these deviations are being discussed. As it stands, the IMF may be in a position to support the adjusted terms as compatible with Zambia’s programme parameters,” the second source added.
A spokesperson for Zambia’s finance ministry contacted on Wednesday pointed to a statement published on Tuesday that said there were “continuing discussions” with the group of bondholders, but that no further comment could be made as the negotiations are being held under Non-Disclosure Agreements (NDAs).
An IMF spokesperson referred to a statement on Friday that said that “modifications are needed to bring this initial proposal more fully into line with the requirements of the IMF program” and declined to comment further.
Representatives for the negotiating committee of the international bondholder group declined to comment and the Paris Club, which acts as a secretariat for developed creditor nations, did not immediately respond to a request for comment.
China’s foreign ministry said all creditors should offer debt relief “in accordance with the principle of ‘common action and fair burden’,” in faxed comments on Monday in response to Reuters questions about what the “reservations” on the bondholder deal were.
(Reporting by Rachel Savage and Karin Strohecker; Additional reporting by Marc Jones, Editing by Alexandra Hudson)