Zambia has reached a deal for relief on nearly $4 billion owed to private bondholders, raising hopes that a protracted debt restructuring by Africa’s second-largest copper producer is nearing its end.

A committee of bondholders agreed to extend maturities and slash interest payments on terms matching recent breakthrough deals with China, Zambia’s biggest lender, and other official creditors, the southern African nation’s finance ministry said on Thursday October 26, 2023.

President Hakainde Hichilema’s government has suffered a long delay in restructuring $13 billion in external debt, including $3 billion of foreign currency bonds, since a 2020 default under his predecessor. 

Chinese and other official creditors failed for years to agree on where losses would fall, meaning Zambia’s restructuring was widely seen as a precedent for other developing countries that had borrowed heavily from Beijing.

The process has also been viewed as a test case for a G20 “common framework” for sovereign debt restructuring. The agreement with bondholders comes after Zambia formalised deals to rework $6.3  billion of official debts earlier this month, allowing the country to proceed with a $1.3 billion International Monetary Fund bailout.  Both agreements provide upfront relief but have also been made possible by a promise to repay more debt if Zambia’s economy fares better than expected in the next few years.

This will be based on exports and tax revenue data and an IMF assessment of how much debt Zambia can sustain.

The deal “brings us closer to the completion of Zambia’s debt restructuring, which will release significant resources for our developmental agenda”, said Situmbeko Musokotwane, Zambia’s finance minister. 

The bondholder deal will now need to proceed to an offer to exchange old bonds for newly issued debt.

“We hope for the swift implementation of this agreement in principle by the end of the year,” Musokotwane said. Asset managers represented on the bondholder committee include Amundi, Greylock Capital Management and RBC BlueBay.

The deal will reduce the face value of the bonds by 18%. Bondholders have gone beyond official creditors and agreed to directly write off $700mn of their claims, which have grown to $3.8 billionn as post-default interest on bonds originally due in 2022, 2024 and 2027 piled up.

Chinese creditors have avoided face-value cuts on their Zambian loans.

Zambia’s finance ministry said that the cut to overall future cash flows on the private bonds will be “significant”, but has not disclosed precise terms. The scale of debt relief will depend on whether better economic performance for Zambia in the next three years triggers higher payments on a third of the new restructured bonds. These will either mature in 2035, or not be paid back until 2053 if Zambia misses IMF targets.

 “The proposal represents an innovative and sustainable solution that we hope will set a positive precedent for future sovereign restructurings under the Common Framework,” the bondholder committee said.