S&P lowers Zambia’s rating to Selective Default

Credit rating agency Standards and Poor’s has lowered Africa’s second largest copper producer’s credit assessment to Selective Default – SD from ‘CCC-‘. This is S&Ps third rating adjustment of the copper producer this year and the second in the second half of the year. Barely a week after Zambia’s solicitation request to dollar bond holders on coupon payment freeze from 14 October 2020 to 14 April 2021, S&P ebbed the red metals credit rating to ‘CCC-‘ from ‘CCC’ with negative outlook after Fitch rating agency the same week slid the Southern African nation deeper into junk at ‘C’ from ‘CC’ aligning to Moodys ‘Ca’ rating levels a notch above default.

A selective default rating is one assigned when a counterpart has or is likely to default on specific class of policies yet continues to meet its obligations with other classes. It includes the completion of a distressed debt restructuring.

IN THE LABYRINTH OF FISCAL FRAGILITIES

The copper producer is in the labyrinth of fiscal fragilities following amplification of already existing balance sheet vulnerabilities in disease pandemic period. According to a press release shared on the London Stock Exchange, Zambia is in arrears with Chinese creditors while simultaneously in talks with bondholders for 6 months coupon reprieve which was pushed back for lack of transparency in overall creditor engagement. The red metal producer got a life line recently with the voting date by bond holders pushed to 13 November coinciding with the grace period for payment of its coupon interest on a 2024 bond for $42.5million.

NO FISCAL SPACE STANCE BY MINFIN

The MinFin in a note signed by the Secretary to the Treasury Fredson Yamba said they had no fiscal space and would not be paying any of the existing creditors should the stand off not be successful. Zambia in June hired the best investment banker for restructures, Lazard Frere’s to help with restructure of its liabilities. Zambia in June commenced talks with the Washington based lender IMF for a bailout package whose discussions will only proceed after successful debt restructure. MinFin head Dr. Bwalya Ng’andu told investors on 29 September that the copper producers debt to GDP ratio had ballooned to 104% and that external debt stock stood at $11.97billion.

Read also: Zambia’s ‘roulette’ quagmire with creditors could weigh credit appetite

Other rating agencies are expected to follow suit in the week. As at 10.46pm yields on Zambia’s 2022 were 60.853%/56.239%, 2024 – 41.171%/38.561% and 2027 – 29.965%/27.921% in bid/ask.

The Kwacha Arbitrageur