Zambia's bonds slump as key payment deadline looms

10/14/2020 | 10:00am

LONDON, Oct 14 (Reuters) - Zambia's bonds fell heavily on Wednesday as an escalating standoff between the government and the country's private sector creditors fed fears of a ugly default by one of the world's largest copper producers.

One of the country's international bonds with a $42.5 million coupon payment due on Wednesday slumped over 3.5 cents on the dollar, its biggest drop since April when the government first signalled it wanted to delay debt payments.

The finance ministry issued a statement late on Tuesday repeating a request made to creditors last month for a number of its debt payments to be deferred until April to give it time to fix its problems.

"Should Zambia fail to reach an agreement with its commercial creditors (including holders of its Eurobonds)... the Republic with its limited fiscal space will be unable to make payments," the finance ministry statement said.

Creditors rejected the original request, saying the government had not laid out or discussed its plans with them, or said whether its other key lenders such as China would also delay payments.

That view hadn't changed on Wednesday.

"A consent solicitation (to delay payments) is very, very unlikely to be approved by creditors," said one of the members of the Zambia External Bondholder Committee, Kevin Daly at Aberdeen Standard Investments in London.

"At this stage we just don't have enough assurances from the government."

If the Zambian government fails to make Wednesday's bond coupon payment it has a 30 day 'grace period' where it can still do so before formally defaulting.

Overall it has $3 billion of Eurobonds outstanding and owes $2 billion to commercial banks, $2 billion to the International Monetary Fund and World Bank, and another $3 billion to China.

It woes have been compounded by a 30% drop in the value of the kwacha this year. The country's debt-to-GDP ratio is also expected to top 100% having ballooned from just over 30% in 2014.

(Reporting by Marc Jones; Editing by Tom Arnold, Kirsten Donovan)

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