Zambia’s official creditor committee could soon answer the critical question that almost sunk its three-year debt restructuring efforts: What should a comparable deal with bondholders look like?
That technical detail is a key tenant of the Group of 20’s Common Framework debt restructuring guidelines, and clarifying it will carry big implications for other nations trying to reschedule their borrowings.
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Zambia struck a deal last year with the official lender group that China and France co-chair to rework $6.3 billion in debt, and later reached a separate accord with holders of $3 billion in outstanding 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. But they now appear to be getting close, even if the details are still not public.
“Discussions between the Zambian authorities, the bondholders and the official creditor committee, are ongoing and progress has been made to clarify the comparability of treatment terms,” an International Monetary Fund spokesperson said in reply to questions at the weekend. “We hope that an agreement could be reached soon.”
Eric Lautier, the fund’s resident representative to Zambia, separately said in comments broadcast March 7 on Lusaka-based Diamond TV Zambia that “there is clarification on the comparability of treatment criteria from the official creditor committee.”
Nailing down the issue will reverberate far beyond Zambia’s borders. It will inform other poor nations reworking their debt using the Common Framework, including Ghana and Ethiopia, on what bondholders need to do to appease official lenders like China.
Zambia is seen as a test case, having become Africa’s first pandemic-era sovereign defaulter.
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The dispute between bondholders and the official creditors was mainly around timing of repayments. Back in November, the bondholders negotiated a deal that would have them receive $431 million during Zambia’s IMF program that runs through 2025, while the bilateral lenders agreed to defer payments over a much longer period with lower rates.
To compensate for a shorter repayment period, bondholders offered to write off 16% of the total amount Zambia owed them — by November it had climbed to more than $3.8 billion, including past-due interest. In net-present value terms, bondholders agreed to a cut of 40%. That was bigger than the 39% reduction the official creditors gave.
The whole process has been stuck in limbo since the official creditors rejected the bondholders’ deal — even as the IMF said it was compatible with Zambia’s debt sustainability parameters.
| Debt relief indicator on November deal: | Official creditor committee | Bondholders |
| Nominal haircut to principal | 0% | 16% |
| Duration extension | 12 years | 8 years |
| Contribution to financing during IMF program | 95% | 80% |
| Overall debt relief at 5% discount rate, including consent fee to bondholders | 39% | 40% |
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