Zambia Agrees $3 Billion Eurobond Deal In Debt Breakthrough

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Zambia has agreed to restructure $3 billion in eurobonds, clearing a key hurdle that’s delayed its three-year effort to escape debt default with implications for other nations seeking creditor deals.

“History has been made! We are pleased to announce the agreement with our eurobond holders,” Zambia President Hakainde Hichilema said in a statement Monday on X.

The finance ministry separately said that it has received confirmation that the agreed terms were compatible with its official creditor committee’s assessment of comparability of treatment, as well as the parameters of an International Monetary Fund program with the southern African nation.

Investors greeted the news. Zambia dollar eurobond maturing 2027 extended earlier gains to advance 2 cents on the dollar to 74.576 cents. That’s the biggest one day gain since Feb. 26 and the price is now the highest since May 2022.

The announcement, which follows an agreement with official creditors last year and only leaves a deal with commercial lenders outstanding, marks a much-needed success for the Group of 20’s Common Framework.

Unveiled to help poor countries overhaul borrowings from all creditors including sovereigns, bondholders and commercial banks, it has been criticized for taking too long.

The country must still conclude deals with other commercial creditors, including Jiangxi Bank Co. and Industrial and Commercial Bank of China Ltd., to which it owes hundreds of millions of dollars.

As Africa’s first nation to default on pandemic-era debt, Zambia is viewed as a test case for the Common Framework and the breakthrough carries lessons for other nations using it to negotiate with creditors. These include Ghana, which is currently talking with investors as it seeks to rework about $13 billion owed to bondholders.

Zambia said that bondholders would forgo about $840 million of their claims, and provide cash flow relief of approximately $2.5 billion during the IMF programme period.

The ministry said that the respective weighted average maturity will be 15 years and eight years under the Base Case Treatment and the Upside Case Treatment of the agreement.

“As a result, the present value concessions from the bondholders at current market rates will be significant,” the finance ministry said. “However, these concessions are necessary given the constraints faced by Zambia and are essential to achieve the relief required under the Debt Sustainability Analysis to restore financial stability to the country.

Deal Delays

Zambia initially struck an agreement last year with the official group of government lenders that China and France co-chair to rework $6.3 billion in debt, and later reached a separate accord with holders of $3 billion of eurobonds.

However, the official creditors in November rejected that deal, saying it wasn’t comparable to the relief they’d agreed to grant the southern African nation. They also didn’t say what they would accept as comparable treatment, throwing the entire restructuring into question because that detail — though technical — is a central tenant of the framework.

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