Moody’s rating agency on 23 May effected its hints on lowering Africa’s second largest copper hub Zambia’s credit assessment. This was contained in a statement issued on its website. The sovereign rating agency cited balance sheet vulnerabilities and advised that the Caa2 rating is a reflection of the default risks on bond holders of the copper producers sovereign paper. It is also a reflection of the refinance risk of the running Eurobonds. Moody’s cites liquidity pressures as a consequence of the fiscal posture of Zambia.
Read more: Zambia’s sovereign posture is exacerbating credit risk – Economic think tank
Moody’s rating agency conducted its review of Zambia early in February. Other rating agencies such as Standards & Poors and Fitch are yet to announce review findings soon.
Credit default spreads on Zambia’s dollar bonds for maturity 2022, 2024 and 2027 widened significantly from already elevated levels of 1,335- 1,553 basis points above similar tenured US treasuries.
COMMENTARY
The sovereign downgrade was expected and the markets seem to have already priced it in. Credit default spreads on Zambia’s dollar bonds are already elevated with yields paying between 18.5% – 19.4%. Balance sheet vulnerabilities and liquidity pressures have persisted for quite some time. A lower assessment for Zambia further into junk has just made it very costly to issue paper in the international capital markets let alone credit appetite by commercial banks to the sovereign will narrow. Moody’s has hinted earlier last month that it was considering lowering the copper producers sovereign rating. Credit and currency risks remain elevated as a reflection of fiscal posture. Standards and Poor’s (S&P) are expected to announce the results of the Zambia review conducted a fortnight ago.
