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Zambia resists Chinese stress on arrears

Zambia has stated it’ll resist stress from Chinese collectors to make paying arrears a situation of pursuing debt reduction talks, because the southern African nation battles to restructure $11bn of exterior money owed.

Africa’s second-biggest copper producer has turn into a check case for the power of poor and indebted nations to search out debt reduction as they grapple with the well being and financial penalties of the coronavirus pandemic. Its negotiations illustrate the constraints of a G20 settlement to halt funds this yr by these international locations to official bilateral collectors.

Zambia has obtained reduction from a few of its bilateral collectors beneath the G20 debt service suspension initiative (DSSI), which incorporates as much as 4 years to repay and the deferral of arrears.

But it’s struggling to strike a cope with Chinese collectors that collectively personal round a 3rd of its debt, doubtlessly imperilling talks with different lenders who need equal remedy for all collectors.

The Chinese authorities is collaborating within the debt reduction on official DSSI phrases, however some official Chinese lenders have stated they’ll solely conform to take part if their share of some $200m of arrears has been cleared first, Zambia’s ministry of finance informed the Financial Times. It disclosed the Chinese arrears to worldwide bondholders final week.

“While some official institutions have asked Zambia to pay arrears as a precondition to granting DSSI treatment, Zambia is insisting that Chinese official creditors apply the same DSSI treatment of arrears as is granted by all Paris Club [western] creditors,” in accordance with the Zambian finance ministry.

“There are multiple Chinese creditors, some being considered official creditors and others being considered as commercial, that have taken different views” on arrears, it added.

Zambia borrowed closely from China over the previous decade to fund an infrastructure growth, however was struggling even earlier than the pandemic as copper costs and the financial system tanked.

“Of course we are concerned. This is the first case when insolvency is knocking on the door,” Kristalina Georgieva, managing director of the IMF, informed the FT’s Africa Summit. “Some now are being somewhat helped by the improvement in commodity prices. [Zambia] is a country that does need to very seriously address the high level of debt. We have been encouraging Zambia to proactively work with its creditors.”

The nation’s negotiations echo tensions elsewhere on the continent.

Ken Ofori-Atta, Ghana’s finance minister, wrote within the FT on Monday that China’s method to debt negotiations was making “western creditors reluctant to offer concessions for fear that released resources will simply be transferred to Beijing”.

Both the IMF, which has obtained a bailout request from Zambia, and bondholders are prone to be reluctant at hand over or forgo cash whether it is then used to pay arrears to Chinese collectors, analysts say.

“We want equal treatment for all different types of creditors to Zambia,” stated Sergey Goncharov, a portfolio supervisor at Vontobel Asset Management.

Last month, President Edgar Lungu’s authorities requested holders of its $3bn US dollar-denominated bonds to droop funds price just below $200m whereas it negotiates the IMF mortgage and prepares a whole restructuring of its debt. Investors proudly owning sufficient bonds to dam the suspension request requested for extra details about the scale of Zambia’s Chinese money owed first.

In addition to searching for offers to defer fee of the arrears, Zambia desires Chinese lenders to droop or reschedule one other $225m in funds, out of a complete of $426m due this yr, in accordance with the solutions it gave the bondholders final week.

“China never presses for repayment of debts, and in line with the international community, seeks appropriate solutions through friendly discussions,” China’s international ministry stated in response to questions from the FT. “We support the Zambian government to negotiate and resolve debt issues with creditors, in accordance with the ‘equal treatment of creditors’ principle,” it stated.

Trevor Simumba, a Zambian analyst of the nation’s debt, stated it might be troublesome for the federal government to persuade Chinese collectors to defer arrears due to the precedent the transfer would set elsewhere in Africa.

China Export-Import Bank, certainly one of Zambia’s largest lenders, has backed infrastructure initiatives throughout the continent. “There is no way China ExIm Bank is going to do any favours to Zambia . . . I don’t see an easy debt restructuring,” Mr Simumba stated. 

Additional reporting by Thomas Hale in Hong Kong, Wang Xueqiao in Shanghai and Andres Schipani in London

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