Zambia Clinches Major Debt Deal With China

Zambia says it has reached a deal to defer debt repayments that were due in October on a loan from the China Development Bank (CDB). Zambia owed CDB about $391m at the end of 2019 — about a tenth of the $3bn it owes Chinese entities — according to the finance ministry.

It was not clear whether the loan in question covers all of this debt or a fraction of it. China holds about a quarter of Zambia’s foreign debt.

“The Government is very pleased to announce that it has reached an agreement with the China Development Bank to defer debt service in respect of a commercial loan facility insured by Sinosure. Under the terms of our agreement with CDB, interest and principal due on 25th November 2020 will be deferred,” said Treasury Secretary Fredson Yamba said.

Mr Yamba said the deferred interest payment is now payable on 25th April 2021 and the deferred principal rescheduled over the life of the facility.

“Reaching this agreement is an important milestone for Zambia in our debt relief efforts. This was made possible thanks to CDB’s and Sinosure’s collaborative and cooperative approach. We will continue to work with all of our creditors to reach similar interim agreements around deferral of principal and interest payments.”

Mr Yamba added, “Such interim debt service deferment agreements will provide the Government with the necessary time to focus efforts on completing its overall debt strategy aimed at restoring public debt sustainability.”

The government missed a $42.5m coupon payment on one of its Eurobonds that was due on October 14 but has a 30-day grace period before it goes into default.

It has asked Eurobond holders to defer interest payments until April 2021, but they have so far rejected the request.

One of the sticking points has been whether other key lenders such as China would also agree to reschedule repayments.

“This is a good step in the right direction but they still need to do more to appease the creditor group,” said one of the members of the Zambia External Bondholder Committee, Kevin Daly at Aberdeen Standard Investments in London.

“It is still piecemeal and what you need is something comprehensive.”

He also said it was not clear whether the announced deal included a deferral of arrears payments believed to have become an obstacle to some Chinese entities participating in debt relief for Zambia.

Zambia’s external debt is nearly $12bn, including $3bn of outstanding Eurobonds, $3.5bn of bilateral debt, $2.9bn of other commercial debt and $2.1bn owed to multilateral institutions.

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