Finance Minister Dr Bwalya Ng’ándu says Vice President Inonge Wina told Parliament that the country was unlikely to default because that is the information he gave her.
And Dr Ng’ándu says government is considering engaging its legal advisors in case the bondholders were to take legal action.
Meanwhile Dr Ng’ándu says Lazard has not failed in its duty to help government restructure its debt.
Speaking in Parliament, Wednesday, Dr Ng’andu said ogovernment came out unlucky with the negotiations with the bond holders because Friday the 13th is a problem.
He said until the decision was made to decline government’s request on a debt standstill, he was confident that the bondholders would accept the request, and he went ahead to assure the Vice-President in a move that ended up being misleading.
“Let me make reference to the statement made by Her Honour the Vice President in response to a question during the question and answer Session on Friday 13th November, 2020. In her statement she indicated that Zambia will not default with respect to her Eurobond coupon payment obligations. This has been interpreted as contradictory in view of our decision not to make the coupon payment subsequent to the decision by bondholders to decline our debt service standstill request. Mr Speaker, up until the decision was actually made to decline our request, we were confident that the bondholders will accept our request because we did not see any strategic advantage that would accrue for them by declining our request,” Dr Ng’ándu said.
“Based on this confidence we briefed Her Honour the Vice President that we did not envisage the possibility of a default as we expected the vote to be in our favour and this is the position that she communicated. Unfortunately, the events that followed turned out to be different from what we had earlier anticipated. The compelling reasons for not paying have, however, already been amply presented in this brief to this August House. I did indicate to her that there will be no default, because we will get a positive answer but that obviously changed with the decision that came. And it was Friday the 13th you know Friday the 13th is a problem.”
Dr Ng’ándu said the position taken was based on the direct engagement with the bondholders which indicated a favourable outcome from the request
“The position that we took was based on our direct engagement with the committee of bondholders. We had direct communication and contact with them and based on that relationship we were barely confident we would swing a positive response. Speculation in the press is always abound in situations like this and you can not substitute speculations from the press with what you are getting from direct involvement with the parties that are involved. So, really it was based on our direct involvement with them. Also on the assessment that the strategic advantage to the Bondholders that will accrue from declining was not clear,” Dr Ng’andu said.
“We did not see why there was any reason why they would go in that route. But also it is important to understand that when we undertook this exercise, we undertook this exercise with the confidence that we would get the positive response. There is no point in starting a journey when you are already feeling or believing that you would lose. We were very confident that we had presented adequate information to the bondholders based on that information, we thought they would give us a positive response. It is unfortunate that what turns out is different but like I said we had given information that they could have used to make a positive decision if they wanted to.”
And Dr Ng’andu said government was considering engaging legal advisors in case the bondholders were to take legal action.
“Mr Speaker, there are some risks associated with the decision not to pay. These include bondholders taking legal action to enforce their rights under financing arrangements. The Ministry will work closely with our legal advisors to respond to this possible eventuality. Others include bad publicity, negative investor perception of Zambia and adverse rating actions. The nature of what we may have to respond to or react to will clearly depend on the route they take, In all probability if they decide to continue along that path they will have to go to court and we will be engaged in a protracted legal battle between us and them, using our own legal resources and their own legal resources. What the outcome will be is difficult to say at this stage, but our own assessment is that given the fact that the bondholders have indicated that they would like us to continue in a constructive way, we think that is the window of opportunity and in all probability we think we will not go the route of litigation. But we will begin to take measures ourselves so that at the right time we can respond to exactly what they throw at us. It is difficult to tell you what exactly their response will be, because we don’t know what they are going to throw at us,” Dr Ng’andu said.
“Sir, in responding to these implications, we are fully committed to engaging the Bondholders Committee meaningfully and transparently to reach a common and orderly approach to the process. We will in this regard continue to provide the bondholders with the necessary information regarding our debt, economic and fiscal position and our plans to restore growth and attain fiscal and debt sustainability. Mr Speaker, government is looking forward to continued and deeper engagement with the Eurobond holders through their committee representatives once we have signed a confidentiality agreement that has already been presented to the bondholders in order to facilitate information sharing. Further, I wish to state that for creditor information that falls under the ambit of confidentiality, we will seek waivers from creditors that have not already granted it so that information can be shared.”
Meanwhile Dr Ng’ándu said Lazard had not failed in its duty to help government restructure its debt.
“Mr Speaker I don’t know where it has come from that Lazard has failed in carrying out its duties. Lazard are our advisors, they are working with us everyday in terms of working out the strategy that we require. They are part of the communication channel between ourselves and the bondholders committee and we continue to work with them as we concretise our debt restructuring going forward, they will be active partners in it. So, the question relating to them having failed in their assignment I think is misplaced,” Dr Ng’ándu said.
“Lazard remain part of the process of coming with a viable debt management strategy which we haven’t produced yet, which we will produce, and we will bring it to the house for review. So they are still part of the team, we continue to work with them and I think up to this point they have basically justified the engagement that we have given them.”
Dr Ng’ándu added that there would be less risk on the country’s rating resulting from the country’s failed agreement with the bondholders.
“We haven’t had any results coming out from the raters whether or not our rating is going to be affected from the three rating agencies. But the point is that a lot of these decisions are not based on current information alone. A lot of decisions that are made are based on anticipation of what will happen not what is happening now. So our view is that the impact of non payment on the other factors for example somebody would ask what is going to be on the exchange rate, government securities, portfolio investors, foreign direct investment. It is difficult to ascertain since the market sentiments are involved here,” said Dr Ng’ándu.
“What is important here is that the behaviour of market players is often heavily influenced by their expectations of what will happen. We think that the market has already reacted to Zambia’s current debt situation, this reflected in the current ratings of our own Eurobonds at this point in time. So we think that most of the risks have already been factored in, we don’t anticipate there is going to be much change in the ratings that we have, but that is just my own assessment.”
