Zambia External Bondholder Steering Committee Statement regarding OCC stance on Comparability of Treatment
LONDON, Nov. 20, 2023 /PRNewswire/ -- The Zambia External Bondholder Steering Committee ("the Committee") is very disappointed and deeply concerned with recent developments with regard to implementing an agreement with the Government of Zambia (the "Government") on a restructuring of Zambia's (i) US$750,000,000 5.375 per cent. Notes due 2022, (ii) US$1,000,000,000 8.500 per cent. Notes due 2024 and (iii) US$1,250,000,000 8.970 per cent. Amortising Notes due 2027.
The Committee and the Government announced on Thursday, 26 October that an agreement-in-principle ("AIP") on restructuring terms had been reached after many months of collaborative, but also very challenging, discussions. The proposed agreement provided the Government with significant cash flow and debt stock relief to support a restoration of macro-economic and debt sustainability. Notably both Zambia and the Committee agreed that theAIPwascompatiblewiththetargets andparametersoftheDebtSustainabilityAnalysis embeddedintheapproved International Monetary Fund ("IMF") program and the Comparability of Treatment principle as agreed with its Official Creditor Committee (the "OCC"), as confirmed in the Government's press statement of 26 October.
Following the announcement of the AIP, the IMF requested certain adjustments to the AIP to ensure the fullest possible compatibility with the IMF targets and parameters. The Committee re-engaged in negotiations and revisited the agreed AIP to ensure full IMF support.The Government confirmed that the revised AIP (the "RevisedAIP")publishedbytheGovernmentearliertodayiscompatiblewiththeIMFprogramparametersand debt sustainability targets.
In light of the additional concessions made in the Revised AIP, the Committee has been deeply disappointed to learn that at a meeting on 17 November, the OCC concluded that the Revised Proposal still does not meet its interpretation of the Comparability of Treatment criteria.
TheCommittee'sRevisedAIPprovidesfor more debtrelief onanNPVbasisthanthat of theOCC(inadditionto providing significant upfront debt forgiveness, while no principal debt reduction is forthcoming from the OCC), ensuring that this would more than meet any reasonable interpretation of Comparability of Treatment.In particular, as set out in the Appendix, the Revised AIP exceeds the net present value effort provided by the OCC by a small margin in the "base case" and a significant margin in the "upside case", using the OCC's own methodology.
We understand that the OCC Co-chairs indicated that they view the Revised AIP as not being comparable withthe memorandum of understanding ("MOU") agreed between the OCC and the Government, despite: (i) the IMF'sposition thattherevised proposal meetsIMFprogram parametersandDSAtargets;and(ii)thefact that the Government views the Revised AIP (as it did the original AIP) as comparable with the OCC's concessions under the MOU.The MOU is not a public document. The Committee notes that it has been frustrated by this and the current process which requires reliance on the OCC's assessment of comparability in circumstances where a lack of transparency prohibits discussion or independent assessment of comparability by bondholders.Further, we understand that there was no consensus amongst the OCC members as to what would be required from bondholders to comply with their interpretation of the Comparability of Treatment principle.In any event, in taking the position it has, 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. In doing so it is creatingvery clear inter-creditor equity issues and is going far beyond the OCC'senvisaged roleundertheCommon Framework in verifying Comparability of Treatment. This is inconsistent with the Common Framework.
This is an extraordinary position to take and will have significant adverse consequences, most immediately for Zambia. It will also completely undermine the already diminishing credibility of the Common Framework.No bondholderwill accept official bilateralcreditorsseeking tore-negotiatethetermsof the restructuringagreement they reach with a sovereign debtor in circumstances where the IMF has confirmed that an agreement already meetsitsownrequirementsforrestoringdebtsustainability.Itisnotforofficial bilateralcreditorstodictatedebt terms to other creditors in circumstances where the Government has confirmed Comparability of Treatment.
Giventhefiduciarydutytheyowetheirclients, theCommitteecannotpossiblyconsider orcountenanceproviding more debt relief than is necessary to restore debt sustainability as defined by the IMF.
The Revised AIP had been finely calibrated to meet the IMF program, and the Government's own, annual constraints. This requires implementation in 2023. The regrettable additional delays resulting from the position takenbytheOCCnowmakeitverychallengingtoresolvethesituationinasufficientlytimelymanner toallow for an agreement with bondholders to be implemented within the required timeframe.
TheCommittee continuestostandreadyandwillingtoimplementtheRevisedAIP,supportedbytheGovernment and the IMF, if a way can be found to obtain OCC support or otherwise proceed with the debt restructuring Zambia so urgently needs.
Members of the Committee include the following asset managers (acting either directly or on behalf of funds or other accounts they manage): Amia Capital LLP; Amundi (UK) Limited; RBC BlueBay Asset Management; Farallon Capital Management, LLC; Greylock Capital Management, LLC.
TheCreditor Committeeisbeingadvised byNewstatePartners andWeil Gotshal& Manges(London) LLP Questions can be directed to:
SpencerJones,NewstatePartners LLP,+442030774916orsjones@newstatepartners.com
AnnieEmery, NewstatePartnersLLP,+442030774915oraemery@newstatepartners.com
AndrewWilkinson,Weil,Gotshal &Manges(London) LLP,+442079031068orAndrew.Wilkinson@weil.com
Formediaenquiries:
Greenbrook,+442079522000,zambia@greenbrookadvisory.com
Appendix
Debt ReliefIndicator | WeakCase | MediumCase | ||
OCC | Bondholders | OCC | Bondholders | |
Nominal haircut1 | 0% | 16% | 0% | 16% |
Durationextension | 12 years | 8 years | 6 years | 6 years |
Contributiontothefinancingofthe programme (2023-2025) |
95% |
80% |
95% |
80% |
OverallDebtRelief (PV/PV@5%)2 | 39% | 41% | 13% | 18% |
OverallDebt Relief(PV/PV@5%) (including consent fee) | 39% | 40% | 13% | 17% |
1Nominal haircut calculated on contractual claims.
2OCC methodologycomparingthePVofpost-restructureddebttopre-restructureddebt,evaluatedat5%discount rate. If debt relief is shown to one decimal place the difference in the medium case rounds up to 6%, 5% including consent fee.
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SOURCE The Zambia External Bondholder Steering Committee

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