French based asset management firm Lazard Freres Gestion, will reorganize Zambia’s liabilities according to a note shared by its Finance Ministry. Africa’s copper producer, Zambia is in the process or reorganising its external debt of $11.23billion comprising $3billion of dollar bond debt and about 60% being project finance debt with the Chinese in addition to other private creditors.
According to a letter addressed to bidders of the tender namely, Newstate Partners, Deutsche Bank and Rothschild & Company, ABSA Bank and Barclays PLC, White Oak Advisory Limited and Lazard Freres, the MinFin notified all bidders after completion of evaluation of the tenders and that its procurement committee had settled for Lazard Freres. The contract amount is $5million to be delivered over a 3 year period. Notice of intention to award the tender expires on 29 May for which unsuccessful bidders are allowed to appeal.
Aggressive step towards a bailout package? For three years Zambia has struggled to get a bailout package on account of debt sustainability. Zambia’s debt stock has hampered successful bailout talks as the copper producer has taken to infrastructure spend as part of its Seventh National Development Plan. However rising debt both at domestic and external level coupled with energy bottlenecks as a consequence of drought effects, has dented its fiscal posture. With disease pandemic effects weighing the world, Zambia has not been spared as its already elevated fiscal posture in balance sheet vulnerability has been amplified by COVID19 protocols such as the partial lockdown and muted business activity. Zambia’s debt to GDP has widened to 91% at current exchange rate while a decline in copper prices will affect foreign exchange build up while partial lockdown effects bite revenue generation from airport taxes to customs duties. COVID has triggered a reorganization of resources to public health from other sectors of the economy.
Earlier in March, Zambia approached the IMF while expressing intention to reorganize its widening debt which sent its dollar bond spreads to over 5,500 basis points as yields climbed to 55%-66% due to asset sell off pressure causing panic as markets priced in default risk. The recent steps by the MinFin signals the Zambia’s authorities intent to address debt sustainability as it seeks IMF assistance let alone maturity of the $750million draws nigh in 2022. Zambia is one African nation that is yet to receive assistance from the Washington based lender for COVID19 relief which is as a result of being highly geared. Co-operating partners such as the Africa development Bank – AfDB, World Bank – WB, German government and European Union – EU have assisted with grants in excess of $200million (equivalent) for COVID relief.
Zambia’s Republican President signed a Warrant of Excess Expenditure No.1- 2020 seeking approval to spend donor funds received from various partners to fight COVID.
The thirty six month period could signal how long it will take for the copper producer to get onto a bailout package after the debt reorganization exercise completes. Until this happens, Zambia’s outlook remains bleak with anaemic growth prospects, widening fiscal deficit and high debt to GDP ratio.
The Kwacha Arbitrageur