THE Zambian government’s lack of engagement and transparency does not provide for the conditions that would allow bondholders to consider providing near-term relief, says the Zambia External Bondholder Committee.
And the Committee says there is no basis to conclude that the Zambian government intends to treat bondholders on an equitable basis with other commercial and non-concessional creditors given the authorities’ plans to continue borrowing over the next three years.
In a statement, Monday, the Committee’s financial advisors Newstate Partners LLP stated that Zambian government’s lack of engagement and transparency did not provide for the conditions that would allow bondholders to consider providing near-term relief.
They revealed that despite the original consent solicitation submitted nearly two months ago, there still hasn’t been any direct discussions between the Zambian government and bondholders apart from the limited information contained in the presentation of September 29, 2020.
This follows the Zambian government’s default on a US $42.5 million coupon payment, which fell due last month, whose 30-day grace period lapsed last Friday.
“Despite intermittent exchanges between advisors over the past few weeks, there have been no direct discussions between bondholders and the authorities to date and bondholders have received no additional information on the above issues, aside from the limited information contained in the investor presentation of 29 September, 2020 and the Q&A follow up. This lack of engagement and transparency does not provide for the conditions that would otherwise allow bondholders to consider providing near-term relief,” the statement read.
“While the Committee stands ready to engage constructively and proactively on finding ways to support Zambia, in the context of the consent solicitation request that was originally launched by Zambia on 22 September, 2020, it is important to note that members of the Committee were unable to provide a positive response given the lack of information on a number of fundamental issues as described in the Committee’s press release of 30 September, 2020. The Committee noted in this release that it would be unable to support the request without clarity on a credible policy trajectory that transcends Zambia’s current economic and political cycles, through a process that includes full debt transparency; clarity on the government’s medium-term policy framework needed to restore fiscal sustainability, preferably with the support of an IMF programme; and transparency on how the authorities intend to deal with other creditors to ensure inter-creditor equity.”
They added that it remained unfortunate that government had decided not to pay the coupon payment as this risked aggravating future discussions with the bondholders.
“The Committee notes the Zambian authorities’ decision not to pay the coupon due on 14 October, 2020, on the outstanding US Dollar bonds due 2024 before the end of the 30-day grace period on 13 November, 2020, thereby, causing an event of default and triggering a cross-default into the other outstanding US Dollar bonds. The Committee views the authorities’ decision as both unnecessary and unfortunate, and this unilateral action risks establishing a more adversarial backdrop to future discussions with bondholders,” it read.
But the Committee, however, expressed hope that the Zambian wouls engage with the Committee in a transparent and collaborative manner to address bondholder concerns and find a path to restoring macroeconomic stability and debt sustainability.
“Committee members additionally note that the authorities have publicly advertised plans to continue borrowing material amounts from non-concessional sources over the next three years, and to service these credits (as well as other loans tied to other projects) on a timely basis. The Committee, therefore, has no basis to conclude that the authorities intend to treat bondholders on an equitable basis with other commercial and non-concessional creditors. This is of particular significance considering that all of the Eurobonds held by Committee members were issued by Zambia in the period 2012-2015 well before the unsustainable and ongoing build-up of debt for project financing purposes. The Committee nevertheless hopes that the authorities will, in the nearest future, engage with the Committee in a transparent and collaborative manner to address bondholder concerns and find a path to restoring macroeconomic stability and debt sustainability. However, members of the Committee reserve the right to consider other options and remedies as provided for under the terms and conditions of the Eurobonds should substantive progress fail to be achieved on addressing the issues raised in numerous communications with the authorities and their advisors,” read the statement.
