Zambia’s Eurobond redemption ‘stratagem’ revealed
“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.