TIDM32BT
RNS Number : 9773T
Zambia (Republic of) (MoF)
20 November 2023
NOT FOR DISTRIBUTION IN ANY JURISDICTION IN WHICH SUCH
DISTRIBUTION WOULD BE PROHIBITED BY APPLICABLE LAW
The Government of the Republic of Zambia announces that a
restructuring agreement with its Eurobond holders cannot be
implemented at this time
The Government of the Republic of Zambia (the "Government")
announces today that, following the agreement in principle ("AIP")
reached with the Steering Committee of the Ad Hoc Group of
Bondholders (the "Steering Committee") on 26(th) October, the
authorities and their advisors conducted consultations with the
country's Official Creditor Committee (the "OCC") and the staff of
the International Monetary Fund (the "IMF Staff").
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. The OCC stated that
the AIP, despite similar present value concessions to the deal
agreed between the Government and the OCC, was not in compliance
with the Comparability of Treatment in the Base Case scenario due
to a shorter extension of the duration and lower contribution to
the closing of the balance of payment financing gap during the IMF
program period. The fact that bondholders have agreed to nominal
face value concessions ("haircut"), while the OCC members have not,
is not considered a mitigating factor since the haircut is not part
of the criteria listed in the G-20 Common Framework to assess
Comparability of Treatment.
In addition, the IMF Staff assessment showed that the AIP with
bondholders would breach the DSA targets. The debt
service-to-revenues ratio would reach 16.7 percent in 2025, 2.7
percentage points higher than the 14 percent target, while the
present value of the debt stock-to-exports ratio would be
marginally breached (by 1 percentage point), at 85 percent in
2027.
In light of these reservations, the Government and the Steering
Committee continued their engagement over the past week and
discussed possible amendments to the AIP. During these discussions,
the Steering Committee made a revised proposal attached hereto as
Annex A (the "Revised Proposal"), which the Government has duly
considered. The Government views the Revised Proposal as compatible
with the objective of restoring debt sustainability and with the
principle of Comparability of Treatment.
In parallel, the authorities and their advisors also engaged
with the IMF Staff and the OCC Secretariat. The IMF Staff advised
the Government that the Revised Proposal, if implemented, would be
compatible with the IMF program parameters and debt sustainability
targets.
In a meeting on Friday 17(th) November, OCC members concluded
that the Revised Proposal was not comparable with the debt
treatment granted to Zambia by the OCC. The OCC Co-Chairs further
advised that there was no consensus among OCC members as to the
magnitude of additional PV concessions that would be required from
Bondholders in the Base Case to comply with the Comparability of
Treatment principle.
After being notified of the outcome of the consultations with
the OCC, the Steering Committee confirmed that any additional
concession on their part was not possible. In the Steering
Committee's view, the Revised Proposal met the IMF program
parameters and the debt sustainability targets and met the
Comparability of Treatment criteria as it already delivered a
present value effort higher than the OCC by 2 percentage points in
the Base Case and 6 percentage points in the Upside Case.[1]
Notwithstanding a comprehensive agreement on the Revised
Proposal between the Government and the Steering Committee, as well
as an agreement with the IMF Staff in relation to the program
parameters and debt sustainability targets, the Government
currently does not have the support of the OCC and is unable to
move forward at this time with the implementation of the
restructuring with the Bondholders.
The Government regrets that discussions with bondholders have
not yet yielded an agreement that could be supported by all of its
stakeholders. The Government is committed to continuing its efforts
to find a satisfactory solution that avoids further costly delays
in completing the country's debt restructuring. In this context,
the Government intends to continue discussions in good faith with
all relevant parties on how it can reach a successful and
comprehensive debt restructuring.
This announcement is made by the Government of the Republic of
Zambia and constitutes a public disclosure of inside information
under Regulation (EU) 596/2014 (16 April 2014).
ANNEX A: REVISED PROPOSAL
The "observation period" of the trigger mechanism is to extend
over the period January 2026 to December 2028, with assessments to
be made at each semiannual payment date with enhanced terms
applicable from the date of the trigger and payable from the next
payment date. The agreement in principle assumes the Upside Case
treatment is triggered irrevocably in case one of the two below
conditions is met during the "observation period."
-- Zambia's Composite Indicator [2] meets or exceeds a score of
2.69 for two consecutive semi-annual reviews, paving the way for an
upgrade to medium debt-carrying capacity.
-- The 3-year rolling average of the USD exports and the USD
equivalent of fiscal revenues (before taking into consideration
grants) exceeds the IMF's projections as laid out in the First
Review of the IMF's Extended Credit Facility Arrangement released
in July 2023. [3]
The financial features of the Base Case and Upside Case
Treatment are presented in the next page. The financial structure
is composed of two bonds, Bond A and Bond B. In case the Upside
Treatment is triggered, financial features of Bond B will be
improved through an accelerated payment schedule and higher
interest rates. The financial terms of Bond A remain unchanged in
both the Base Case and Upside Case treatments.
Notes: (i) In addition, the execution of the transaction would
involve the introduction of a consent fee of 1.5% of the original
face value amount of bonds (US$ 3bn) to incentivize participation
to the exchange offer; (ii) the total amount amortized under the
"Upside Case" Treatment for the Bond B is not equal to the Face
Value due to the PIK coupons, which represents a total of USD 329m
capitalized coupons over 2026-2031.
***
This press release does not constitute an offer of securities
for sale in the United States, and the securities (if issued) will
not be registered under the U.S. Securities Act of 1933, as amended
(the "Securities Act") or the securities laws of any state of the
United States and they may not be offered or sold within the United
States, except pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act
and applicable state or local securities laws. This press release
does not constitute an offer of securities for sale, or the
solicitation of an offer to buy any securities, in any state or
other jurisdiction in which any offer, solicitation or sale (if
made) would be unlawful. Any person considering making an
investment decision relating to any securities must inform itself
independently based solely on an offering memorandum to be provided
to eligible investors in the future in connection with any such
securities before taking any such investment decision.
This announcement is directed only to beneficial owners of the
Government's bonds who are (A) "qualified institutional buyers"
within the meaning of Rule 144A under the Securities Act or (B)
outside the United States in offshore transactions in compliance
with Regulation S under the Securities Act, that may lawfully
participate in the Restructuring in compliance with applicable laws
of applicable jurisdictions.
No offer of any kind is being made to any beneficial owner of
bonds who does not meet the above criteria or any other beneficial
owner located in a jurisdiction where the offer would not be
permitted by law.
Forward-Looking Statements
All statements in this press release, other than statements of
historical fact, are forward-looking statements. These statements
are based on expectations and assumptions on the date of this press
release and are subject to numerous risks and uncertainties which
could cause actual results to differ materially from those
described in the forward-looking statements. Risks and
uncertainties include, but are not limited to, market conditions
and factors over which the Government has no control. The
Government assumes no obligation to update these forward-looking
statements and does not intend to do so, unless otherwise required
by law.
Notice to Investors in the European Economic Area and the United
Kingdom
Notice to EEA retail investors. The announcement contained in
this press release is not being directed to any retail investors in
the European Economic Area ("EEA"). As a result, no "offer" of new
securities is being made to retail investors in the EEA.
This announcement is only directed to beneficial owners of Bonds
who are within a Member State of the European Economic Area or the
United Kingdom (each, a "Relevant State") if they are "qualified
investors" as defined in Regulation (EU) 2017/1129 (as amended or
superseded, the "Prospectus Regulation").
The securities are not intended to be offered, sold or otherwise
made available to and should not be offered, sold or otherwise made
available to any retail investor in a Relevant State. For these
purposes, a "retail investor" means a person who is one (or more)
of: (i) a retail client as defined in point (11) of Article 4(1) of
Directive 2014/65/EU (as amended, "MiFID II"); (ii) a customer
within the meaning of Directive (EU) 2016/97 (as amended), where
that customer would not qualify as a professional client as defined
in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified
investor as defined in the Prospectus Regulation. Consequently no
key information document required by Regulation (EU) No 1286/2014
(as amended, the "PRIIPs Regulation") for offering or selling
securities or otherwise making them available to retail investors
in a Relevant State has been prepared and therefore offering or
selling securities or otherwise making them available to any retail
investor in a Relevant State may be unlawful under the PRIIPs
Regulation. References to Regulations or Directives include, in
relation to the UK, those Regulations or Directives as they form
part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 or have been implemented in UK domestic law,
as appropriate.
United Kingdom
For the purposes of section 21 of the Financial Services and
Markets Act 2000, to the extent that this announcement constitutes
an invitation or inducement to engage in investment activity, such
communication falls within Article 34 of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the
"Financial Promotion Order"), being a non-real time communication
communicated by and relating only to controlled investments issued,
or to be issued, by the Republic of Zambia.
Other than with respect to distributions by the Republic of
Zambia, this announcement is for distribution only to persons who
(i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Promotion Order, (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth
companies, unincorporated associations etc.") of the Financial
Promotion Order, (iii) are outside the United Kingdom, or (iv) are
persons to whom an invitation or inducement to engage in investment
activity (within the meaning of section 21 of the Financial
Services and Markets Act 2000) in connection with the issue or sale
of any securities may otherwise lawfully be communicated or caused
to be communicated (all such persons together being referred to as
"relevant persons"). This announcement is directed only at relevant
persons and must not be acted on or relied on by persons who are
not relevant persons. Any investment or investment activity to
which the announcement relates is available only to relevant
persons and will be engaged in only with relevant persons.
[1] Without accounting for the consent fee element, which final
payable amount would only be known upon Zambia completing the
exchange.
[2] See
https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/02/14/pp122617guidance-note-on-lic-dsf
for more details on the Composite Indicator.
[3] See
https://www.imf.org/en/Publications/CR/Issues/2023/07/13/Zambia-2023-Article-IV-Consultation-First-Review-Under-the-Extended-Credit-Facility-536340
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END
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(END) Dow Jones Newswires
November 20, 2023 03:00 ET (08:00 GMT)
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