By Marc Jones
LONDON (Reuters) -Zambia’s international bondholders expect to strike a debt restructuring deal with the country “in the coming weeks”, a leading member said on Tuesday, a move that would draw a line under the nation’s near three-year stint in default.
Hakainde Hichilema’s government reached an agreement last week to restructure $6.3 billion it owes to governments abroad, including China, and now needs to win a comparable deal with the holders of its $3 billion dollars worth of bonds.
“The fact that we have an official sector deal is a real positive,” said Kevin Daly, an emerging market fund manager at Abrdn, part of the committee of bondholders estimated to hold almost half of the $3 billion worth of debt.
“So I think we (bondholders) can now reach a deal in the coming weeks.”
Sources close to the bondholder group had said earlier that it would engage constructively with Zambia, which is one of the world’s largest copper producers and has some of Africa’s most expansive national parks.
One reason for the optimism is that last week’s deal saw the government pledge to speed up its repayments if its economy performs well enough for the International Monetary Fund to upgrade its assessment of the country’s debt carrying capacity.
Daly said that was something bondholders themselves had called for when restructuring talks became stalled last year over how much debt relief would be required. They now want authorities to provide a list of possible options to finalise the deal.
The sudden progress in Zambia after nearly three years of difficulties has sparked hopes that other stricken countries such Sri Lanka and Ghana could finalise there own restructurings by early next year at the latest.
Addressing parliament on Tuesday, Zambian Finance Minister Situmbeko Musokotwane said the key assessment on its finances and economy would be done jointly by the IMF and the World Bank in 2026.
“The adjustment mechanism provides for an accelerated repayment schedule and higher interest rates if Zambia’s debt carrying capacity improves from the current ‘weak’ classification to ‘medium’ classification,” he said.
While it has not fully disclosed all the other the terms of last week’s deal, media reports have said the interest rates of the restructured loans will initially be as low as 1% and the repayment dates will be extended more than 12 years on average.
China has rejected writing off some of the debt altogether as part of that plan, but bondholders could still do that, Daly added.
“We are OK for a principal haircut,” he said, referring to the banking term for a accepting a lower amount than a bond’s original face value.
The group’s other main stipulations are an “acceptable” level of coupon payments on the restructured bonds, a realistic “duration” or repayment timeframe which could be around 10-years and also some step-up in the level of repayments over time.
“We just want to see a menu of options,” Abrdn’s Daly said.
(Reporting by Marc Jones, additional reporting by Chris Mfula in Lusaka; editing by Libby George, Christina Fincher, Ed Osmond, William Maclean and Anna Driver)
