Zambia default (2020)
In November 2020, Zambia let the grace period on a 42.5 million dollar eurobond coupon run out: the first African sovereign default of the pandemic, resolved over nearly four years under the G20 Common Framework.
On October 14, 2020, Lusaka missed a 42.5 million dollar coupon on its eurobond due 2024. Bondholders had turned down the six-month payment suspension it asked for, unable to see clearly what the country owed Chinese lenders, and the thirty-day grace period ran out on November 13: the first African sovereign default since the pandemic began. Zambia owed about 3 billion dollars across three eurobonds, but most of its external debt was bilateral or owed to banks, and China held the largest share. The country requested treatment under the G20 Common Framework in early 2021. The official creditor committee, co-chaired by China and France, did not meet until June 2022, after the election of Hakainde Hichilema; the IMF approved an Extended Credit Facility of about 1.3 billion dollars in August 2022. The deal on 6.3 billion dollars of official debt was announced in June 2023 at the Paris summit and signed in October. A first agreement with the eurobond holders was rejected in November 2023 by the official creditors, who found it softer than the effort asked of governments: comparability of treatment, for once, applied to the letter. The second, with contingent clauses tied to the country's debt-carrying capacity, was reached in 2024, and the bond exchange settled in June. For underwriters, Zambia became the yardstick. A non-honoring policy on a state-guaranteed loan pays out after the waiting period, but what the subrogated insurer recovers depends on the haircut and the timetable of a political negotiation that took nearly four years. The public agencies that had indemnified their exporters ended up inside the official creditors' treatment.
Textbook case: a bank lends 50 million dollars to a Zambian state-owned company under an unconditional state guarantee, and insures 90% of the risk under a non-honoring policy with a 180-day waiting period. The December 1, 2020 installment, 5 million of principal and 1.25 million of interest, is paid by neither the borrower nor the state. On May 30, 2021, with the waiting period over, the insurer pays 90% of 6.25 million, 5,625,000 dollars; the bank keeps 625,000 dollars for its own account. Each later missed installment goes the same way, and the insurer, subrogated to the extent of its payments, waits to recover whatever the restructuring grants creditors of the same rank.
Zambia default, Zambian debt restructuring, Zambia eurobonds, Zambia Common Framework
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.