Zam­bia’s Eurobond re­demp­tion ‘strat­a­gem’ re­vealed

Zambian Business Times - - FISCAL AND DEBT MANAGEMENT -

“Zam­bia has an ar­ray of re­demp­tion op­tions rang­ing from a sink­ing fund to debt buy back…

As Zam­bia’s first dol­lar bond (USD750mil­lion) falls due in 2022, the state has com­menced an as­set – li­a­bil­ity ex­er­cise and has fi­nal­ized a re­demp­tion strat­egy that will be aimed at es­tab­lish­ing an op­ti­mum plan of re­deem­ing the bonds tak­ing into ac­count the coun­try’s fis­cal sit­u­a­tion, Per­ma­nent Sec­re­tary for Eco­nomic Man­age­ment in the Min­istry of Fi­nance Honourable Mukuli Chikuba said. This was at an Eco­nom­ics As­so­ci­a­tion of Zam­bia – EAZ Pub­lic dis­cus­sion themed ‘ Zam­bia’s debt – what the best way forward is’ held in Lusaka.

“It gives an ar­ray of op­tions which in­clude: im­ple­men­ta­tion of a sink­ing fund, a debt buy – back strat­egy and a re­fi­nanc­ing op­tion of the cur­rent out­stand­ing dol­lar bonds”, he said. The sink­ing fund would have an ini­tial de­posit of USD20mil­lion and would build up from then on­wards.

Chikuba said Eurobonds served two pur­poses in the mar­ket namely, fi­nanc­ing of cap­i­tal ex­pen­di­ture needs and the need to have an in­stru­ment in the mar­ket as a bench­mark barom­e­ter for credit risk. And to achieve re­fi­nanc­ing of out­stand­ing bonds, macroe­co­nomic sta­bil­ity is a key in­gre­di­ent tak­ing into ac­count the aus­ter­ity mea­sures an­nounced by the Honourable Min­is­ter of Fi­nance Mrs Mar­garet Mwanakatwe.

He em­pha­sized that govern­ment will not do any re­fi­nanc­ing ex­er­cises with­out the con­sul­ta­tion of the ex­ist­ing dol­lar bond hold­ers.

The govern­ment is con­sid­er­ing re­struc­tur­ing of dol­lar debt to deal with cash flow is­sues. To this ef­fect, for the 2022 ma­tu­rity, we have an op­tion to slow down on de­vel­op­ment work so as to cre­ate space for re­fi­nanc­ing of the Eurobond or al­ter­na­tively speak to some cred­i­tors, mainly bi­lat­eral and get some flows be­tween now and 2021. These flows would then be pushed to­wards cre­at­ing space for eco­nomic growth which is vi­tal for eco­nomic sus­tain­abil­ity, he said.

As high­lighted in a note from the Min­is­ter of Fi­nance in re­sponse to the Moody’s and Fitch rat­ing down­grade, the re­demp­tion strat­egy would be pre­sented to cabi­net for ap­proval af­ter which a fi­nan­cial ad­vi­sor would be en­gaged.

Left to Right – Out­go­ing Res­i­dent IMF Rep­re­sen­ta­tive to Zam­bia Al­fredo Bal­dini and Per­ma­nent Sec­re­tary Eco­nomic Man­age­ment – Mukuli Chikuba

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