Zambia’s Eurobonds extended losses on Wednesday and its currency tumbled to a record low after Africa’s second-biggest copper producer asked banks for proposals on reorganising as much as $11.2bn of foreign debt.
The country “intends to implement a liability management of its external debt portfolio to lengthen maturity and enhance its capacity to meet debt-service obligations,” the finance ministry said in a request for proposals sent to lenders, seen by Bloomberg and verified by two of the recipients.
The advisers’ mandate would include assisting the government in negotiations with creditors, as well as “formulating restructuring plans for loans” where creditors agree, according to the document. Yields on Eurobonds surged to fresh highs and the kwacha weakened for a 10th straight day.
Zambia’s currency is the world’s worst performer this year, and foreign-exchange reserves have fallen to a record low and cover less than two months of imports. Credit ratings companies including Fitch Ratings had already warned of a high risk of default even before copper prices fell 20% this year as the coronavirus pandemic roils markets.
The southern African nation’s $3bn of Eurobonds have been trading at distressed levels. The debt is held mostly by European and U.S. investors, with BlackRock Inc., NN Group NV and Ashmore Group Plc among the biggest holders.
“They’re in a situation where they’re going to need assistance,” said Yvonne Mhango, an economist with Rencap Securities Pty Ltd. in Johannesburg. “It’s a commodity exporter and you essentially have a global demand shock. The market is reading that and they know Zambia already has really low foreign exchange reserves.”
The request for proposals is part of Zambia’s plan to put in place measures to ensure debt sustainability and deal with liabilities that will become due in the medium term, Chileshe Kandeta, the Finance Ministry spokesman, said in an emailed response to questions.
The document was sent to lenders including Barclays Plc, Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. The ministry also sent it to Greylock Capital Management LLC, an investor in emerging-market distressed debt.
“The government has no intention of unilaterally restructuring its debt without consulting creditors,” Kandeta said. “The government will respect agreements and use market-based instruments where applicable.”
Any restructuring plan will include debt held by multilateral and bilateral lenders, commercial banks, capital-market investors export-credit organisations and others, the document said.
Zambia has been seeking support from the IMF since at least 2014, and Finance Minister Bwalya Ng’andu reiterated his nation’s intentions last month.
“They were very clear that one of the things they want to see before we can get down to a program is we exhibit debt sustainability,” Ng’andu had said of a meeting with fund staff. “I think what they were looking for was some indication from us beginning to take measures that point to the right direction.”