The central bank in Africa’s second largest copper producer Zambia successfully raised K4.09 billion ($204 million equivalent) proceeds in the seventh and strongest Kwacha bond sale of the year. Of an array of K2.6 billion worth of fixed income assets on offer, bids totaled K7.60 billion, levels unseen this year as offshore demand surged in search for yield. This was in view of the red metal producers economic outlook. This outcome marks the second oversubscription of the year.
The Southern African nation is currently on the cusp of an economic turnaround in the medium term with a private debt restructure being negotiated with Eurobond holders a few weeks after a landmark $6.3 billion bilateral debt treatment was concluded on the sidelines of the Emmanuel Macrons Global Finance Summit in Paris.
Zambia’s Finance Ministry earlier in the month released its 2024- 2026 Medium Term Expenditure Framework green paper that has revealed a projected economic growth rebound of 4.2% to 5.3%. However the red metal producer is likely to face headwinds this year in a 10% decline in copper productivity forecast this year, potential electricity bottlenecks on account of a resurgence of El Niño currents and below average corn crop yields. It still remains evident that domestic money market funding will remains a primary funding source until the Southern African nation secures newer credit lines post restructure of its graded debt. Zambia remains default rated on its foreign currency long term issuer rating with S&P, Moodys and Fitch, a condition that elevated credit risk profile of the sovereign.
Other endogenous factors Zambia faces are inflation slow down that remains sticky The copper producer has nonetheless tamed price pressures but inflation remains hesitantly sticky outside the 6-8% targeted central bank band at 10.2%.
Despite the increased asset demand, yields across the curve spectrum were unchanged in the 20’s at 24.5% (5yr) to 27.75% (15yr). Currency supply concerns remain persistent with pricing currently a few points below K20 for a unit of dollar.
The Kwacha Arbitrageur
