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Bondholders’ rejection will not trigger payments from govt, says Ng’andu

THE decision by the bondholders to reject Zambia’s request to defer interest payments will not trigger any payments from Government because all creditors have to be treated equally, Finance Minister, Bwalya Ng’andu has said.

In an interview, Dr Ng’andu said by making $42.5m coupon payment, Zambia will complicate the way she deals with other creditors.
“If we are paying, we could have paid yesterday (Friday). We deferred a payment from a month ago waiting for the decision by the bondholders and they have declined that request but that will not trigger payments from us because it will essentially complicate the way we deal with other creditors.
The requirement is that we treat all of them equally,” the minister said. Dr Ng’andu was reacting to remarks by economic experts that government should consider immediately paying the US$42.5 million coupon payment which fell due last month so that Zambia can have a leverage to negotiate with the bondholders as it still has up to next week to make the payment.
Zambia, under the Cure Period still has up to Wednesday next week to meet its obligation.
A Cure Period is a time frame of 30 to 90 days during which a company that has gone into technical default on a contractual payment is permitted to submit payment without further prejudice, and without being considered to have defaulted.
There could be a possibility of paying and negotiating once Government uses part of the foreign reserves to service the coupon payment, says Professor Oliver Saasa, an economist.
Prof Saasa said Governwmnt could be able to buy time for more negotiations with the bondholders if the US$42.5 million coupon payment for last month was paid.
Under normal circumstances, he said, it would not be recommended to use foreign reserves but stressed that laying bondholders was an emergency.
“Government must get some of the US$1. 4 billion reserves and pay the coupon payment because when you default, there will be an immediate demand of what you are owing.
“This includes the bullet payment instantly. They will demand US$1 billion over and above the US$42.5 million,” Prof Saasa said in an interview.
Bondholders last Friday rejected Zambia’s request to defer interest payments due on each of the bonds during the period from October 14, 2020 until April 14, 2021.
This means that the modifications and waivers, including the deferral of interest payments due on each of the bonds during the period from October 14, 2020 until April 2021 14, requested by Zambia will not be implemented.
Zambia missed payment of US$42.5 million coupon on one of its dollar denominated sovereign bonds last month.
Commenting on this development, Prof Saasa pleaded with Government to immediately pay the coupon payment as the cost of defaulting was devastating.
Prof Saasa warned that Zambia would further be downgrade by rating agencies and that the default would complicate negotiations with the International Monetary Fund (IMF).
“My posititon is that it is better to negotiate with the Chinese and have a default with them where you have a government there that can negotiate and even forgive than to default with these Eurobond holders who immediately you default there is no negotiation because it is commercial loans.
“These are private companies on the Capital markets. There is no government to negotiate with. These guys you must pay them. My plea is that let us pay. Arrogance will not take us anywhere. The economy will be very bad like other countries,” he said.
Zambia has US$3 billion of Eurobonds outstanding and owes US$2 billion to commercial banks, US$2 billion to the IMF and World Bank and another US$3 billion to China.
And Economist Noel Nkhoma said Government had up to next week “when an interest coupon matures, and you are unable to honour your obligation, you have what they call a 30-day “Cure Period.”
He said Government’s only option was to pay the coupon interests of US$42.5 million from the foreign reserves.

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