(Bloomberg) -- Zambia said it's won some debt servicing relief from China Development Bank, putting more pressure on private bondholders to accept a government proposal with similar terms before the country becomes the first to default in Africa since the onset of the coronavirus pandemic.
The Chinese state-owned lender agreed to defer interest due Oct. 25 for six months, and to reschedule the principal due by the same date over the life of the facility, Zambia's Finance Ministry said in a statement. The southern African nation has until a Nov. 13 vote to convince holders of its $3 billion in Eurobonds to accept a six-month interest-payment holiday.
While the Finance Ministry didn't provide details on the size of the China Development Bank loan nor how much interest was being deferred, Zambia owed the lender at least $391 million by the end of last year, according to the ministry's 2019 Annual Economic Report. It's not clear if the deal includes the total amount Zambia owes CDB, and the ministry only said it was for a commercial loan facility insured by Sinosure.
Zambia is seeking to re-profile external debt that has grown to nearly $12 billion, after the pandemic exacerbated imbalances from years of overspending and an ambitious infrastructure drive. Chinese state-owned and private lenders account for more than 25% of the total, according to S&P Global Ratings Services, which cut its assessment of Zambia's debt to selective default after the government said it couldn't meet payments and skipped a coupon on its Eurobonds due Oct. 14.
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“Reaching this agreement is an important milestone for Zambia in our debt relief efforts,” Fredson Yamba, Zambia's secretary to the Treasury, said in a statement dated Oct. 27. “We will continue to work with all of our creditors to reach similar interim agreements around deferral of principal and interest payments.”
While the deal is a step in the right direction, the loan is only a small portion of Zambia's total Chinese debt, according to Kevin Daly, investment director at Aberdeen Standard Investments, which owns Zambian bonds.
Rafael Molina, managing partner at Newstate Partners in London, financial advisers to a core group of Zambia's bondholders, didn't immediately respond to an email seeking comment. Zambia's Finance Ministry didn't immediately respond to a call, text message and email seeking comment.
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