Zambia to Restructure Over $3 Billion of International Bonds

The Zambian government and their overseas bondholders have reportedly entered into non-disclosure agreements (NDA) today signalling the start of talks to restructure over $3 billion of international debt.  

In 2020, Zambia was the earliest African country to default on its debt payments during the Covid pandemic. The strain of excessive interest rates and loans imposed severe limitations on the government's capacity to invest in crucial social programs and infrastructure development, vital drivers of economic expansion. Bond restructuring decreases the burden of debt repayment, enabling the government to pay back creditors over a longer period of time or with lower interest rates, therefore ensuring that money is accessible for advancing Zambian systems of healthcare and education. 

These pending talks about bonds, along with the restructuring agreement in June indicate international faith in Zambia’s growing debt carrying capacity and economic stability. 

Potentially starting today, the government is expected to share detailed information with some of its largest international bondholders, who are members of the creditor committee. This information will form the basis for debt restructuring talks. 

The creditor group, advised by Newstate Partners and Weil, Gotshal & Manges, comprises 15 European and U.S.-based institutions, collectively holding around 45% of Zambia's Eurobonds. 

The steering committee consists of Amia Capital, Amundi, BlueBay Asset Management, Farallon Capital Management, Greylock Capital, and T. Rowe Price. 

The result of these meetings, however, will be retained for a minimum of two weeks in line with the conditions of the NDA. An anonymous source told Reuters that “We first need to see Zambia's updated macroeconomic package, [before any agreements] which is in part why we have to get restricted” 

Following Zambia's successful negotiations with bilateral creditors, including China and the Paris Club, to restructure around $6.3 billion in debt in June, the country has now opened up discussions for additional negotiations. Zambia, has achieved this progress partly due to President Hichilema's internationally recognised emphasis on economic diplomacy. 

Although French President Emmanuel Macron praised the deal in June as “historic”, Hichilema remained pragmatic, understanding that over than $6 billion owed to private lenders still needed to be repaid, and the necessity of preventing Zambia from taking on any more significant loans in the future.  

However, the restructuring has relieved some of the pressure on Hichilema’s government enabling some necessary money to be directed into Zambian infrastructure. 

Zambia still has three outstanding dollar bonds maturing in 2022, 2024 and 2027, trading at 52-57 cents on the dollar. 

This upcoming deal with creditors involves a system to raise interest and accelerate debt repayment when Zambia’s loan capacity shifts from “weak” to “medium” after a World Bank and IMF joint evaluation in 2026. 

The talks will focus on how to improve Zambia’s debt carrying capacity without modifying capital payments. One proposed approach is to include state-contingent debt instruments (SCDI), which attach a sovereign’s debt service payments to its capacity to pay.  

SCDIs would enable Zambia to pay their debt proportional to economic outcomes such as variations in gross domestic product, export revenues, and budget, resulting in Zambia potentially paying back more debt during periods of increased economic growth while simultaneously protecting the country from paying as much in situations of disaster. 

The unnamed source told Reuters that “The indicator [for SCDI implementation] needs to be linked to the debt carrying capacity but that can't be the direct trigger, because you would be handing a veto power to the IMF and the World Bank”.  

Although the outcome of the talks will not be immediately known, Zambia will have access to around $188 million after the review is completed.