Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Zambia has agreed a revised deal to restructure nearly $4bn in US dollar bonds with private investors, moving the bankrupt southern Africa nation closer to exiting a years-long default after months of tensions between China and other creditors.
Africa’s second-biggest copper producer and the bondholders said an agreement announced on Monday would provide more debt relief than a deal which China, the country’s single biggest creditor, rejected in November as appearing to favour private investors.
Zambian President Hakainde Hichilema said in a post on X that “history has been made” with the new deal.
Hichilema’s government signalled that China and the country’s other official creditors were happy with the latest bondholder deal, after delays that made Zambia a symbol of the failure of a G20 initiative for faster solutions to debt crises in poor countries.
Zambia’s limbo was an “indictment” of the global system for sovereign debt restructuring, Hichilema told the Financial Times last week, as he pushed creditors “to just walk the extra mile and close this transaction”.
Under the new deal bondholders will take a cut to the face value of their claim worth $840mn, up from $700mn under the initial agreement. That has increased the direct “haircut” taken by bondholders from 16 per cent to 22 per cent of their overall claim, based on the 5 per cent discount rate that official creditors are using to judge the value of cash flow relief in the restructuring, people familiar with the matter said.
Bondholders will also extend repayment dates and provide payment relief, enabling Zambia to continue receiving funds under a $1.3bn IMF bailout.
They will receive better terms on a $1.35bn portion of the bonds if the IMF judges that the Zambian economy can carry more debt in the years ahead or if Lusaka beats the fund’s key targets. This structure has been carried over from the November deal. Official creditors will benefit from a similar arrangement if Zambia outperforms.
Prices on Zambia’s defaulted dollar bonds rose on Monday to about 74 cents on the dollar, after rallying since the start of the year on revived hopes for a deal.
Zambia’s official creditors including China have already signed up to giving relief on more than $6bn of debt, which made deals with private creditors the last hurdle to leaving behind its 2020 default on about $13bn of debt.
After dealing with bondholders, Zambia must agree terms with other commercial creditors such as bank lenders, including Chinese banks.
“Prompt implementation of a debt restructuring agreement with bondholders is not only in Zambia’s interests, but the wider creditor community as a whole,” said a steering committee for the external bondholders. The committee includes Amia Capital, Amundi and Greylock Capital Management among other emerging markets investors.
Hichilema’s government said it had “received confirmation that the agreed terms are compatible” with the view of official creditors on the burden-sharing between themselves and private creditors — an indication that Chinese objections to a deal had been overcome.
Zambia’s previous deal with bondholders collapsed in November after official creditors led by China said the terms did not compare with the relief they were already offering.
The new deal will include protections against “certain other creditors” receiving better terms than bondholders. This applies to future deals with commercial creditors, people familiar with the deal said.
Closing a restructuring deal became more urgent for Hichilema’s government in recent months as inflation soared in Zambia after its currency plummeted against the US dollar and the country was hit by drought.
