Zambia’s $3 billion Eurobond holders have rejected a request from the government to defer interest payments, risking it to become Africa’s first COVID-era sovereign default.
The government of Zambia had requested its Eurobond holders to grant it a deferral of interest payments until April 2021, as it struggled with the dual burdens of fighting the pandemic and a dwindling economy.
However, The Zambia External Bondholder Committee, which holds more than 40% across all Zambia’s bonds and a blocking stake in each issue, had already indicated it would reject the government’s plan, citing a lack of transparency and communication.
Zambia already missed payment of a $42.5 million coupon on one of its dollar-denominated sovereign bonds last month, and if it does not pay its coupon, it would be classified as a default on its three outstanding Eurobonds with a face value of $3 billion.
Zambia floated the first Eurobond in 2012 and followed up with two more in 2014 and 2015 amounting to $3 billion. As of December 2019, foreign debt hit $11.2 billion with the IMF warning that the southern African nation risked plunging into debt distress.
Data from Lusaka showed that Zambia’s total external debt stock stood at $4.8 billion, or 18% of gross domestic product, by the end of 2014. Five years later, it had more than doubled to $11.2 billion, or 48% of GDP. The IMF predicts a rise to nearly 70% by year’s end.
The Eurobonds are not its only debt. Zambia owes some $3.5 billion in bilateral debt, $2.1 billion to multilaterals and $2.9 billion to other commercial lenders. It owes about $3 billion to China and Chinese entities.