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Setback as Zambia’s official creditors reject bond deal

Published

3 weeks ago

November 20, 2023

Zambia has suffered a significant setback in its attempts to restructure its debt as it announced on Monday that official creditors, including China, refused a revised agreement to rework $3 billion of Eurobonds.

The creditor said that the deal could not be implemented at this time. The International Monetary Fund (IMF), Zambia, and the Official Creditor Committee (OCC) of the country had “expressed reservations” over a deal the country struck with overseas bondholders and whether the initial agreement reached with a group of bondholders in late October provided equivalent debt relief from bilateral and commercial lenders.

The IMF staff assessment revealed that the first proposed deal with bondholders would have violated the fund’s Debt Sustainability Analysis (DSA) targets. By 2024, the ratio of debt service to government revenue would have risen to 16.7%, trillion surpassing the target of 14% by 2.7 percentage points.

The multilateral body stated that in the meantime, the debt-to-exports ratio’s present value would have been 85%, one percentage point higher than the 2027 target.

Major creditor, China, last week called on other creditors to shoulder a “fair burden” amidst the country’s recent push for debt restructuring. Zambia re-engaged with the Ad Hoc Creditor Committee of Bondholders in response to these reservations, and talks are actively proceeding.

In a statement, the Zambian government referred to a two-pronged strategy that called for varying degrees of debt relief based on the nation’s economic performance.

“The OCC, through its Co-chairs, concluded that Comparability of Treatment would not be achieved in the Base Case scenario, although would be achieved in the Upside Case scenario”, it said.

According to Zambia’s government, the OCC co-chaired by China and France insisted that official creditors could not agree on how much more would need to be given by bondholders in the base case to adhere to the Comparability of Treatment principle.

Meanwhile, the External Bondholder Steering Committee has maintained that it was extremely concerned about the recent events and that when compared to official creditors, its most recent offer would provide more debt relief on a net present value basis and a principal haircut when official creditors were willing to give none.

Zambia’s international bonds dropped more than 2.6 cents on the dollar following the statement, Tradeweb data showed.

“The OCC is demanding debt relief from commercial creditors that is materially higher than either the Government or the IMF deem necessary to restore debt sustainability,” the bondholder committee said in a statement.

“It is creating very clear inter-creditor equity issues and is going far beyond the OCC’s envisaged role under the Common Framework in verifying Comparability of Treatment.”

Three years ago, Zambia defaulted on its external debt, resulting in a recession after the COVID-19 pandemic. To stabilise its economy, the country has since asked its bilateral creditors for restructuring.

Related Topics:debt burden Featured IMF Zambia

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Nigeria’s energy crisis increases production costs by 40%— Report

Published

9 hours ago

December 8, 2023

Ifeoluwa Dada

A recent report by Nanyang Technology University’s Centre for African Studies has revealed that Nigeria’s poor electricity contributes to up to a 40% rise in the cost of manufactured products.

Nigeria’s manufacturing sector can employ a larger share of the labour force, and has far higher productivity than agriculture, according to a report titled “Back to Growth: Priority Agenda for the Economic Revival of Nigeria,” which was recently presented in Lagos by the author and Director of the Centre, Amit Jain.

“Electricity blackouts, together with transport bottlenecks, crime, and corruption, are among the key impediments to firm growth. Outages and voltage fluctuations are commonplace.

“This damages machinery and equipment. Consequently, most firms rely on self-supply of electricity through the use of generators, which increases the cost of production and erodes competitiveness”, the report said.

Nigeria’s underdeveloped power sector makes it difficult for the country to achieve widespread economic development and compels the majority of companies to produce a sizable amount of their own electricity. The nation has recently seen the departure of well-known companies due to growing operating expenses.

Given the challenges in ensuring steady power supply throughout the nation, the report suggested the government look into creating industrial clusters. The primary advantage of clustering businesses, according to the report, is that it makes it possible to prioritise infrastructure development in order to give businesses a competitive edge while providing access to resources like raw materials, skilled labour, and technology.

It read further, “The clusters should ideally be located within zones that are well connected with roads, power lines, and telecommunications.

“Although Nigeria has scored some success with informal clusters, such as the computer village in Otigba, Lagos; the auto and industrial spare parts fabricators in Nnewi; the leather tannery in Kano; and the footwear, leatherworks, and garment cluster in Aba, very few are working to their full potential.

“Lack of coordination between the federal and state governments and patchy implementation of industrial policy has meant that the infrastructure required to attract manufacturing investment is inadequate.”

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Exit by multinational companies to cost Nigeria $335 million in FDI

Published

1 day ago

December 7, 2023

Ifeoluwa Dada

Nigeria’s economy is expected to lose $335 million (about N310 billion) in foreign direct investment (FDI) owing to continued exit by multinational companies.

Recently, the country has suffered the exit of high-profile firms amidst rising operation costs. The sum reflects the combined asset value of the most recent exit announcements made by Equinor, a major global player in the upstream oil sector, and Procter & Gamble, a major global player in the Fast Moving Consumer Goods, or FMCG, segment.

The American multinational consumer goods company, Procter & Gamble (P&G), is winding down its on-the-ground presence in Nigeria, while Equinor is also leaving after selling its Nigerian business, including its share in the Agbami oil field to Nigerian-owned Chappal Energies. P&G plans to switch from local production to solely importing its products.

Explaining the decision, Andre Schulten, chief financial officer, P&G, said the decision was a result of “the challenging business environment in Nigeria, as well as the difficulty in creating US dollar value”.

Equinor’s Senior Vice President for Africa Operations, Nina Koch, maintained, “Nigeria has been an important part of Equinor’s international portfolio over the past 30 years, but the transaction becomes necessary as it would enable it to “realise the value and is in line with Equinor’s strategy to optimize its international oil and gas portfolio and focus on core areas.”

A few months ago, GlaxoSmithKline Consumer Nigeria Plc, a company that developed and manufactured innovative pharmaceutical medicines, vaccines, and consumer healthcare products, shut down its operations in Nigeria, leading to the loss of jobs and ultimately causing a surge in the prices of drugs.

Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their electricity. It has also been a major factor in capital flight from the West African country, Africa’s largest economy.