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Zambia to emerge from debt default as bondholders back $3 bln restructuring

ZAMBIA’S Ministry of Finance said that more than 90% of holders of its $3 billion in outstanding international bonds had accepted its restructuring proposal, paving the way for it to emerge from a lengthy default.

The country defaulted more than three years ago and is reworking its debt under the G20 Common Framework – a platform to bring together creditors like China and developed creditor nations, known as the Paris Club, to ensure swift and smooth debt overhauls for low-income countries.

Zambia was widely seen as a test case for the G20 plan but the process had been beset by delays, curbing investment and economic growth and weighing on local financial markets. A devastating drought worsened the situation.

“Finalising this agreement with bondholders will create the fiscal breathing space necessary for Zambia to remain on a trajectory of sustainable economic growth,” Finance Minister Situmbeko Musokotwane said in an online statement.

“After nearly four years since we initially defaulted on our Eurobonds, the close of the restructuring chapter is in sight.”

Voting on the proposal ends on May 30 but on the basis of instructions the government received by May 24, it expects its proposal to be “approved at the relevant meeting,” the ministry said in a regulatory statement.

“The Zambia restructuring was painfully drawn out for all parties involved, especially the country,” said Ajatta Mediratta, president at Greylock Capital Management in New York and a member of the key steering committee during the restructuring negotiations. He added that the Common Framework process is likely to improve as non-Paris Club bilateral lenders gather more experience.

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“But the jury is still out on the sequential nature of the Common Framework’s approach to official creditors versus private sector ones, the lack of disclosure of Official Creditor terms and, of course, the huge unresolved issues with Comparability of Treatment,” he said.

Under the plan, bondholders will swap three existing instruments due to mature in 2022, 2024 and 2027, into two amortising bonds.

Zambia secured a $ 1.3 billion loan from the International Monetary Fund in 2022, which required it to restructure its debt with other creditors.

Through a spokesperson, the IMF welcomed the development. “This will bring Zambia closer to accomplishing an external debt restructuring that will help restore debt sustainability,” the fund said.

Zambia’s international bonds traded unchanged, with the 2024 bond indicated at 63.4 cents in the dollar and the 2027 maturity at 75.98 cents, according to Tradeweb data. ,

A spokesperson for the group of private bondholders declined to comment.