Need to treat all creditors equally led to Zambia default, central bank says
By Chris Mfula and Joe Bavier LUSAKA/JOHANNESBURG (Reuters) - Zambia could have paid a coupon on one of its sovereign dollar bonds last Friday, but chose not to do so due to the need to treat all creditors equally, the copper producer's central bank governor said on Wednesday. However, the finance minister later said that the decision had increased the risk of bondholders taking legal action.
By Chris Mfula and Joe Bavier
LUSAKA/JOHANNESBURG (Reuters) - Zambia could have paid a coupon on one of its sovereign dollar bonds last Friday, but chose not to do so due to the need to treat all creditors equally, the copper producer's central bank governor said on Wednesday.
However, the finance minister later said that the decision had increased the risk of bondholders taking legal action.
Zambia became Africa's first sovereign pandemic-era default after it failed to pay $42.5 million coupon at the expiry of the grace period on Friday. Holders of Zambian Eurobonds had rejected a government request to defer interest payments until April.
Facing the impact of the coronavirus pandemic and a limping economy, Governor Christopher Mvunga said that Zambia was seeking broad debt relief, including within the framework of a debt service suspension backed by the Group of 20 wealthy nations.
"One of the conditions is that all creditors have to be treated equally. ... It's not that we could not pay. It's just that if we pay one creditor then we need to pay all the creditors," Mvunga told a news conference.
Eurobond holders have criticised the government, saying its lack of engagement had made providing near-term debt relief impossible. One creditor group said it may consider other options in the wake of the default, setting the stage for a potentially acrimonious debt restructuring.
In a briefing to parliament, Finance Minister Bwalya Ng'andu said not paying the coupon had helped improve the atmosphere for negotiating with some other creditors "who previously have shown no indication to do so."
However, while reaffirming Zambia's commitment to working transparently with creditors towards a solution, he acknowledged the decision came with risks.
"These include bondholders taking legal action to enforce their rights under the financing arrangements," he said, adding that the government would work closely with its legal advisers to respond to that eventuality.
On Wednesday evening, ratings agency Fitch downgraded Zambia's long-term foreign currency rating to "restricted default", citing non-payment of the coupon on the 2024 Eurobond.
Ng'andu said the government was in discussion with the International Monetary Fund over the "appropriate policy instrument" to help manage public debt.
The Fund's involvement was important to give an orderly restructuring process "credibility and impetus", he said.
Zambia's three defaulted sovereign-dollar bonds are trading just over 43 cents on the dollar, according to Tradeweb data.
The central bank also left its main lending rate unchanged at 8.0% on Wednesday.
Inflation, which rose to 16% in October from 15.7% in September, is expected to average 16.7% in the fourth quarter, before declining to 13.5% next year.
(GRAPHIC: Zambia interest rate and inflation - https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjebmjpr/Zambia%20interest%20rate%20and%20inflation.PNG)
Gross international reserves, meanwhile, slipped by $111.8 million to around $1.32 billion, or 2.3 months of import cover, from end-June to end-September, because of increased foreign exchange sales and debt service payments.
(Writing by Alexander Winning and Joe Bavier; Graphic by Karin Strohecker; Editing by Toby Chopra and Alexandra Hudson)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.