Investors fretting that Zambia may have more debt than it’s let on have sent the nation’s Eurobonds tumbling.

Yields on the copper-producing country’s $1.25 billion amortizing bonds due in 2027 rose as much as 54 basis points, the most since February 2016, before paring the increase to 50 basis points on Monday. At 8.45 percent, the yield was the highest in more than a year.

Banks including Nomura Holdings Inc. say the government may have greater external liabilities than the official figure of $8.7 billion. That’s bad news for holders of Zambia’s dollar securities, which were already the worst performers in Africa year-to-date through the end of last week, losing 2.4 percent, according to the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index.

The risk is that Zambian bondholders could find themselves in a similar situation as investors in Mozambique, where hidden debts led to default and the government is seeking to restructure.
No Deal

Zambia has been in talks for several months with the International Monetary Fund about a $1.3 billion bailout, but the two sides have failed to strike a deal, partly because of the Washington-based lender’s concerns about foreign borrowings. This ratchets up risk, according to Robert Besseling, director at political risk advisory firm EXX Africa Ltd., who also believes Zambia’s foreign debt could be much higher than the official number.

“The risk of debt defaults, especially on short-term high-interest loans, is rising fast,” he said in an emailed note Monday. “In the absence of an IMF aid program to boost foreign currency reserves and improve balance of payments, Zambia is quickly headed for a broad economic and financial crisis.”

Not everyone is convinced the debt situation is as murky. There is “no hard evidence” that the risk of hidden loans in Zambia is greater than any other countries with similar credit ratings, according to Gregory Smith, a sovereign-debt strategist at Renaissance Capital who was previously a World Bank economist in Zambia. Still, the rising debt and the cost of servicing it are the country’s biggest economic challenge, he said in a note April 5.

Finance Minister Margaret Mwanakatwe said on Friday she was carrying out a debt-sustainability analysis to move the IMF negotiations forward and also wants to “reprofile” $3 billion of outstanding Eurobonds. The nation is already seeking to restructure bilateral loans from Chinese state companies, which Nomura estimates at about $5 billion.

The main hurdle Zambia has encountered in securing an IMF loan is its future debt contraction plans, according to Mukuli Chikuba, permanent secretary at the Ministry of Finance.

“The issue is, going forward, what do you borrow, what don’t you borrow,” he said Sunday on state-owned television. “What we’ve said is: give us time, we’ll pull back.”