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Zambia's bondholders must accept write-downs - campaign group

JOHANNESBURG, Nov 11 (Reuters) - Holders of Zambia’s dollar-denominated bonds must accept steep write-downs to allow the copper producer, which is set to see Africa’s first pandemic-era sovereign default, regain its footing, a leading debt relief campaigner said on Wednesday.

Even before the COVID-19 pandemic caused a global economic slowdown, Zambia was struggling with mounting debts, among them three outstanding Eurobonds with a total face value of $3 billion.

It missed payment of a $42.5 million coupon on one of those bonds last month and will default when a grace period expires on Friday if creditors do not agree to its request to delay interest payments until April.

Bondholders have so far not expressed support for a delay.

Sarah-Jayne Clifton, director of the UK-based Jubilee Debt Campaign, which is pushing for debt relief for the world’s poorest countries, said creditors lent to Zambia at high interest rates knowing the debt could become unpayable.

“That risk has now materialised, and bondholders must now accept a significant debt write-down,” she said in a statement.

With the pandemic adding to pressure on a number of 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.

“It is simply immoral for bondholders to demand full repayment and to make huge profits on Zambia’s debt while the country struggles with COVID-19, a major economic crisis and spiralling poverty levels,” Clifton said.

Jubilee calculated that, if bondholders are paid in full, some could make between 75% and 250% profit on what they paid for the debt.

Zambia last tapped international capital markets in July 2015. Eurobonds make up roughly a quarter of its $12 billion external debt load.

Zambia’s Eurobonds have traded at around half their par value or below since March, indicating bondholders expect to take a hit on their investments.

Eurobond holders have cited Zambia’s lack of progress in talks with the International Monetary Fund and poor transparency regarding its borrowing from China as obstacles to their agreeing to its debt service suspension request. (Reporting by Joe Bavier; Additional reporting by Karin Strohecker in London; Editing by Mark Potter)

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