Zambia bondholder, creditor committees hit restructuring impasse

Chicago, Nov. 20 – Zambia’s recently reached agreement-in-principle with stakeholders regarding a debt restructuring has been tested after the International Monetary Fund asked for certain adjustments to ensure compatibility with IMF targets and parameters, according to a press release.

The agreement pertains to Zambia’s $750 million 5 3/8% notes due 2022, $1 billion 8˝% notes due 2024 and $1.25 billion 8.97% amortizing notes due 2027.

Zambia and the external bondholder steering committee have been working for many months with the official credit committee, reaching an agreement-in-principle on Oct. 26.

An IMF Staff assessment showed that the agreement reached with bondholders would breach DSA targets. The debt service-to-revenues ratio would reach 16.7% in 2025, 2.7 percentage points higher than the 14% target, while the present value of the debt stock-to-exports ratio would be marginally breached (by 1%), at 85% in 2027.

After the IMF asked for certain adjustments, the agreement was revised.

The official creditor committee is arguing that the revised proposal does not meet its interpretation of the “comparability of treatment” criteria.

The revised agreement provides for more debt relief on a net present value basis, in addition to providing significant upfront debt forgiveness.

The official creditors want less debt relief and no principal debt reduction, and also argue that the revised agreement is not in line with the memorandum of understanding.

On the other side, the official creditor committee is being said to demand debt relief from commercial creditors that is materially higher than either the government or the IMF deem necessary to restore debt sustainability.

In doing so, the steering committee argues, it is creating clear inter-creditor equity issues and is going far beyond the official creditor committee’s envisaged role under the common framework in verifying comparability of treatment.

For now, debt restructuring seems to have hit an impasse.

The external bondholder steering committee is in favor of the revised agreement, supported by the government and the IMF.

The steering committee has officially put on the record that it is now challenging to resolve the situation in a timely manner in the required timeframe.

According to an appendix, the steering committee is advocating for a 16% nominal haircut and a duration extension of either six years or eight years.

The official committee is asking for no haircut (the full $1.85 billion) and a duration extension of either six years or 12 years.

In terms of the contribution to the financing of the program from 2023 to 2025, they are separated by 15%, with the official committee wanting 95% and the steering committee 80%.

Overall debt relief for Zambia would be 13% to 39% for the official committee or 18% for 41% for the steering committee. With the consent fee, it would be between 17% and 40% for the steering committee but the same for the official committee.

The restructuring agreement with eurobond holders cannot be implemented at this time, the government reported.

However, Zambia intends to continue discussions in good faith.

Members of the committee include the following asset managers: Amia Capital LLP; Amundi (UK) Ltd.; RBC BlueBay Asset Management; Farallon Capital Management, LLC; and Greylock Capital Management, LLC, all acting either directly or on behalf of funds or other accounts they manage.

The creditor committee is being advised by Newstate Partners and Weil Gotshal & Manges (London) LLP.

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