LAZARD Freres, the French firm government has appointed to provide advisory services in relation to Zambia’s debt management, should be trusted because the company has a long track-record at successfully negotiating sovereign debt, says economic statistician Shebo Nalishebo.
Commenting on the Ministry of Finance’s decision to award a US $5 million tender to Lazard Freres for the provision of advisory services in relation to its debt management over a delivery period of three years, Nalishebo argued that Lazard had an impressive track-record of successfully negotiating sovereign debt on behalf of several countries that were previously drowning in debt, such as Mozambique and Greece.
He insisted that the company boasted of vast experience and technical expertise, which justified government’s decision to spend US $5 million on their fees.
“A number of commentators have wondered why on earth Zambia should hire foreign financial advisers. Prominent among these are major opposition political parties UPND and MMD. The UPND has offered to restructure the debt for free and suggested that the US $5 million be given to women and youth empowerment programmes. The former ruling party, MMD, says they have the experience and the human resources to clear the nation’s debt as was done in 2006. They [MMD] suggest the US $5 million should be used for other development projects such as investing in ZCCM-IH to mine gold. It is common practice for sovereign governments to hire financial advisers when they are considering debt restructuring,” Nalishebo stated in a statement.
“While many of us are arm-chair advisers, Lazard has had a long history spanning decades of advising cash-strapped governments. Argentina, Greece, Indonesia, Iraq and Ukraine have turned to Lazard over the years. Let’s bring it closer to home…In 2012, Lazard helped to convince 86 per cent of bondholders of Ivory Coast debt to agree to amended payment terms. Remember the ‘hidden debt’ debacle in Mozambique? Following disputed debt numbers, Mozambique hired Lazard in 2016 to help assess its external debt. Further, in 2018, Mozambique’s national oil company sought the services of Lazard to help raise as much as US $2 billion to refinance gas development projects. In 2019, Egypt looked to Lazard to help promote investment opportunities to the country. I could be wrong, but I do not know of any Zambian financial advisory firm or political party with a track record as Lazard’s to be able to pull off this kind of debt restructuring.”
Nalishebo, who is also a ZIPAR research fellow, outlined that Lazard’s appointment had come at a critical moment in Zambia’s history given the fact that the country’s debt stock comprised largely of non-concessional debt, which required the company’s expertise to urgently address.
“Granted, the MMD while in government has a record of having restructured the HIPC debt, that type of debt restructuring is debt reduction or forgiveness. The thing is, since the HIPC debt relief, the structure of Zambia’s debt has changed drastically, with non-concessional debt taking up a bigger chunk of it. Debt management dynamics have completely changed and become increasingly more sophisticated,” he argued.
“The type of restructuring required this time around is debt rescheduling or refinancing, which involves a change in an existing debt contract and replacement by a new debt contract, generally by taking a ‘hair cut’ (agreeing to take a reduced percentage of the full value of the bond), lengthening of maturities of the old debt, preferably with lower interest rates and rescheduling the payment of arrears, if any. Sadly, we have not moved along with that sophistication. Our legal and institutional frameworks largely remain tailored for concessional debt. For bondholders to agree to new terms as outlined above, you need a financial adviser with clout and experience in dealing with other financial institutions who may be the holders of our Eurobonds.”
And Nalishebo recalled how government’s trip to China back in 2018 meant to re-profile Zambia’s debt stock failed to yield desired results, hence the need to employ an experienced debt negotiator.
“Listen! We could be dealing with sharks in open waters. Zambia is a landlocked country, and we have no experience swimming in the sea. In this scenario, we definitely need Lazard, who can handle sharks. Let us stick to our lakes and rivers and handle crocodiles. As for Chinese debt, which takes up about 30 per cent (I assume) of our external debt, a high-profile trip to China by government officials in 2018 to try and re-profile Chinese debt did not yield much, a classic example of the need for an advisory firm like Lazard,” stated Nalishebo.
“With that kind of required clout and experience, advising for such services does not come cheap. Zambia has hired Lazard for US $5 million to restructure its US $11 billion foreign debt over a three-year period. That is 0.05 per cent of the entire foreign debt portfolio. Greece forked out up to €25 million in fees when Lazard was hired back in 2012 to persuade most of the owners of its €206 billion of Greek debt to accept a 75 per cent haircut on the value of their holdings. That worked out to 0.015 per cent of the face value of the bonds swapped. It is the ‘small price’ we have to pay for not having managed our debt properly in the first place. So, given the current circumstances, the authorities went for one of the best in the business.”