THE Zambia External Bondholder Committee says its members are unable to accept the Zambian government’s request to suspend Eurobond interest repayments, owing to lack of debt transparency among other things.
And the Committee says the 2021 national budget moves Zambia further away from a path of debt sustainability, as long-standing fiscal imbalances have still not been addressed.
In a statement jointly-issued by Newstate Partners LLP managing partner Spencer Jones and Rafel Molina, Wednesday, the duo disclosed that the Committee’s members were unable to provide a “positive response to the Zambian government’s Consent Solicitation request to suspend Eurobond interest debt repayments given the absence of clarity on a number of issues.
Last Tuesday, Secretary to the Treasury Fredson Yamba announced that the Ministry of Finance had placed a request to bondholders of the US $3 billion worth of Eurobonds to freeze interest payments for a six-month period in view of government’s tight fiscal constraints and challenging macrorconomic environment.
“The Zambia External Bondholder Committee notes the launch of a Consent Solicitation request on 22 September 2020, through which Zambia seeks to defer interest payments falling due under the country’s US $3 billion of outstanding Eurodollar bonds until April, 2021, and confirms that its members participated on a public investor call convened by Zambia and its advisors on 29 September, 2020. While the Committee stands ready to engage constructively and proactively on finding ways to support Zambia, its members are unable to provide a positive response to the Consent Solicitation request at this time given the absence of clarity on a number of issues as further described herein,” the statement disclosed.
The Committee also revealed that the Zambian government and its advisors failed to engage with the Committee on any basis.
“The Committee was formed in late June, 2020, in response to the announcement by Zambia that it had appointed financial advisors to assist in a liability management exercise of the country’s external debt and to engage with Zambia and its advisors with regard to how bondholders can support a restoration of macro-economic and debt sustainability. At its formation, the Committee noted that it believed that any future interactions with Zambia should be conducted in a manner consistent with the G20-endorsed Principles for Stable Capital Flows and Fair Debt Restructuring,” they stated.
“These include transparency and timely flow of information, open dialogue, good faith actions and fair treatment among creditor classes. Since the Committee formation three months ago, and prior to the announcement of the Consent Solicitation request on 22 September 2020, the Zambian authorities and their advisors did not engage with the Committee on any basis. Committee members are ready to consider engaging with Zambia as part of a liability management exercise, which may include the provision of near-term debt relief, but such an exercise should be designed in a way that provides a durable benefit to all stakeholders. This requires articulating a credible policy trajectory that transcends Zambia’s current economic and political cycles, rather than simply deferring a series of financial commitments to a later date, and should come as part of 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.”
And the Committee stated that next year’s proposed national budget moved Zambia further away from a path to debt sustainability, as long-standing fiscal imbalances had still not been addressed.
“The 2021 budget, presented to parliament last Friday (September 25), moves the country further away from a path to debt sustainability, as long-standing fiscal imbalances are not being addressed. The Committee is also concerned at the continued pace of external debt accumulation, with the investor call of 29 September confirming that almost US $900 million of project loans were disbursed in the first eight months of 2020, adding unnecessary further debt and debt service costs,” stated Molina and Jones.
The Committee consists of 14 international financial institutions based in the US and Europe and in aggregate holds approximately 40 per cent of the total amount of Zambia’s outstanding Eurobonds, including at least 25 per cent in each of its three outstanding Eurobonds.
It remains in close contact with other holders representing an additional 30 per cent of Zambia’s outstanding Eurobonds.
The Committee has appointed Newstate Partners LLP as its financial advisors