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Exclusive: Zambia 'doing everything possible' to avoid looming default - finance minister

JOHANNESBURG (Reuters) - Zambia is doing everything possible to avoid a sovereign debt default later this week, including sharing information on its Chinese debt with holders of its dollar-denominated bonds, its finance minister told Reuters on Monday.

Sources close to the main committee of bondholders, however, said little progress had been made in debt talks.

Even before the coronavirus pandemic caused a global economic slowdown, Zambia was struggling with mounting debt due to low prices for copper, its main export.

It has three outstanding dollar-denominated Eurobonds with a total face value of $3 billion.

It missed payment of a $42.5 million coupon on one of its Eurobonds last month and has asked creditors to delay interest payments until April, a request that has so far failed to receive support from bondholders.

A 30-day “grace period” on the coupon payment expires on Friday.

“We’ll wait and see. We’re doing everything possible,” Finance Minister Bwalya Ng’andu told Reuters by ‘phone. “The discussions (with bondholders) are on a continuous basis.”

When asked whether Zambia had the resources to pay the coupon within the grace period, he said his country had committed to treating all its creditors the same.

Its dollar bonds are currently trading between 44-46 cents on the dollar, according to Tradeweb data. XS1267081575=TEXS1056386714=TEUS988895AA69=TE

STUMBLING BLOCKS

With the pandemic adding to pressure on some African countries already struggling with unsustainable debt, Zambia is being closely watched as a test case for how borrowers and creditors might navigate a broader debt crisis.

Eurobond holders have cited Zambia’s lack of progress in talks with the International Monetary Fund (IMF) and poor transparency regarding its borrowing from China as obstacles to their agreeing to its request to suspend debt payments.

Ng’andu said his government had shared requested information with creditors.

“We’ve given all the information that needs to be given concerning the Chinese debt,” he said.

However, the source close to the Zambia External Bondholder Committee - a large group of creditors holding more than 40% across all of Zambia’s bonds and a blocking stake in each issue - said they still did not have enough clarity.

“Creditors have not received detailed information on the Chinese debt,” the source said, adding that no discussions of substance had been going on.

A second source said creditors had “very low visibility on the terms, conditions and alleged arrears on Chinese or other commercial debt as well as specific proposed treatment of it.”

Zambia’s debt-to-GDP ratio is expected to top 100% this year, having ballooned from just over 30% in 2014.

Its external public debt burden is around $12 billion. Some $3.5 billion of that is bilateral debt, $2.1 billion is owed to multilaterals and $2.9 billion is other commercial debt in addition to the $3 billion of Eurobonds.

It owes about $3 billion to China and Chinese entities.

The China Development Bank agreed late last month to defer repayment on a loan to Zambia, but Eurobond holders say the deal’s announcement lacked details such as the loan’s size and terms.

Ng’andu said Zambia would continue to engage with Chinese institutions to seek further debt relief.

Additional reporting by Chris Mfula in Lusaka and Karin Strohecker in London; Editing by Alison Williams and Mike Collett-White

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