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.

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.

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.

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

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

(Reporting by Rachel Savage; Writing by Bhargav Acharya, Editing by Karin Strohecker)