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KEY RATING DRIVERS
The downgrade of Zambia’s Long-Term Foreign-Currency IDR follows the end of the 30-day grace period for the coupon payment on the USD1 billion Eurobond that matures in 2024. The coupon payment was due on 14 October and the grace period ended on 13 November. Fitch understands that the payment has not been made.
We have affirmed at ‘C’ and withdrawn the ratings for the remaining Eurobonds, which have not yet defaulted, because Fitch no longer considers these ratings to be relevant to the agency’s coverage, given that the sovereign has announced its intention to restructure all of these Eurobonds. Fitch expects all of these remaining Eurobonds to default in due course, either as the sovereign misses debt service payments or as an agreement is reached on restructuring the bonds.
On 22 September, the government of Zambia issued a “consent solicitation” to holders of three global bonds, requesting a suspension of debt service payments for six months from 14 October 2020, covering three coupon payments due on 14 October 2020, 30 January 2021, and 20 March 2021 on the respective bonds. An initial vote by bondholders on the consent solicitation was postponed to 13 November owing to a lack of quorum. Bondholders ultimately rejected the offer.
The Ministry of Finance issued a statement on 13 October intended to clarify the government’s debt management strategy and its approach to servicing its external debt obligations. The statement notes that “considerable challenges and liquidity difficulties compounded by COVID-19” have led Zambia to issue the consent solicitation to bondholders and also to negotiations on debt service suspension through the G-20 Debt Service Suspension Initiative. The statement goes on to note the government will only continue to service on a current basis foreign currency-denominated debt from multilateral agencies and debt on a few priority projects that have immediate social and economic impact.
We have affirmed the Long-Term Local-Currency IDR at ‘CC’, as the government has made no statement regarding the restructuring of local-currency debt.
ESG – Governance: Zambia has an ESG Relevance Score of 5 for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Zambia has a medium WBGI, in the 38th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.
ESG – Creditor Rights: Zambia has an ESG Relevance Score (RS) of 5 for Creditor Rights as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight.
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