JOHANNESBURG - Zambia's finance ministry said on Thursday it had reached an agreement in principle on debt restructuring terms with a creditor group holding its international bonds, a milestone in its drawn-out debt rework process.

The agreement will see the three existing bonds restructured into two new amortising bonds maturing in 2035 and 2053 respectively, under a "base case" scenario. Both bonds would mature in 2035 if Zambia's economy performs better. Under both scenarios, the deal would translate into an 18% nominal haircut, the ministry said.

Zambia was the first African country to default in the COVID-19 era, in late 2020, and its restructuring process suffered numerous delays. International bondholders also complained they were left out of the process, which started with drawn-out negotiations with bilateral creditors including China.

Zambia's three international bonds rose sharply after the agreement, adding as much as 3.5 cents on the dollar, Tradeweb and MarketAxess data showed. The 2024 and 2027 bonds were bid at or just under 60 cents in the dollar.

The proposed restructuring includes a $700 million write-off and $2.5 billion in cash flow relief during the period of Zambia's $1.3 billion, 38-month IMF programme, which was approved in September 2022.

The agreement "paves the way for similar restructuring agreements with our other private creditors," Zambia's finance minister Situmbeko Musokotwane said in a statement.

"We hope for the swift implementation of this agreement in principle by the end of the year."

 

LONG-TERM INVESTMENT

In a separate statement, the Zambia External Bondholder Steering Committee welcomed the agreement, saying it would "restore full international capital markets access to Zambia and encourage long-term investment in the country."

The deal allows for a better and quicker payout to bondholders in case the economy performs better than expected during an observation period running from January 2026 to December 2028.

To trigger this, the country would see either a rise in the composite indicator that would signal that its debt carrying capacity be deemed higher, or that hard-currency revenues would exceed IMF projections on a three-year rolling average.

Under both of the deal's economic scenarios, a new $2 billion bond will amortise from 2023 onwards until it matures in 2035, paying a 5.75% coupon paid from December 2023 to September 2031 and then 8% until maturity.

However, the second $1.135 billion bond is designed to amortise in three equal instalments paid in 2051, 2052 and 2053 and a 0.5% coupon in the "base case" scenario. In the "upside case" the maturity would be brought forward to 2035 with amortization from 2032 onwards, and interest payments will step up three times.

The committee of bondholders owns or controls 40% of the outstanding bonds, Zambia's finance ministry said.

Members of its steering committee - which generally takes the lead on any negotiations - are Amia Capital LLP, Amundi, RBC BlueBay Asset Management, Farallon Capital Management and Greylock Capital Management, according to the committee statement.

(Reporting by Rachel Savage; Writing by Bhargav Acharya; Editing by Karin Strohecker and David Holmes)