Zambia’s plan to repurchase a US$1.36 billion restructured international bond has triggered resistance from private creditors, reigniting tensions over one of Africa’s most closely watched sovereign debt restructurings.
The government is seeking to buy back the 2024-issued bond before a contractual clause triggers a steep rise in interest payments, but bondholders say the move was launched without consultation and undermines agreed restructuring terms.
An ad hoc group of investors argued that the buyback is “materially adverse” to their interests and departs from established market practice requiring prior engagement with creditors.
The bond was issued as part of Zambia’s debt restructuring under the G20 Common Framework after the country defaulted on its external debt in 2020, becoming the first African sovereign to do so during the pandemic.
Under the terms of the instrument, a performance-linked clause allows the coupon to jump from 0.5 percent to 7.5 percent if Zambia’s economic recovery meets defined thresholds set by the International Monetary Fund (IMF) over consecutive assessments.
More Read
That trigger is now considered imminent, raising the prospect of a sharp increase in debt-servicing costs if the buyback is not completed.
The Ministry of Finance and National Planning has offered to repurchase the bonds at US$780 per US$1,000 face value for early tenders and US$740 for later submissions, with deadlines set between June 5 and June 11.
Authorities plan to finance the operation partly through a US$600 million concessional loan from the African Development Bank (AfDB) and domestic resources, arguing that the transaction will significantly reduce long-term debt costs.
More Read
Officials in Lusaka say the move is part of a broader debt management strategy aimed at stabilising public finances and redirecting savings toward infrastructure and energy investment, including power sector reforms.
Economists supportive of the plan argue that the buyback reduces exposure to future high-interest obligations and improves Zambia’s debt profile by replacing expensive commercial debt with cheaper concessional financing.
However, creditors represented by law firm Cleary Gottlieb Steen & Hamilton have raised concerns over the structure of the operation, particularly the use of a “clean-up call” clause that could allow Zambia to force redemption of remaining bonds if sufficient holders accept the offer.
They argue that the approach limits investor choice and effectively pressures remaining bondholders to accept the buyback price, despite contractual protections intended to balance post-restructuring outcomes.
The dispute highlights lingering tensions in Zambia’s debt restructuring process, which resulted in the issuance of two new instruments, including a long-dated bond maturing in 2053.
Market reaction to the announcement was initially positive, with bond prices rising on expectations that the buyback could reduce default risk and improve near-term fiscal stability.
More Read
Zambia remains under close scrutiny from international investors and multilateral institutions as it attempts to restore debt sustainability while financing development needs in energy, mining, and infrastructure.
The outcome of the buyback process is expected to be determined by mid-June, with final settlement linked to the drawdown of the AfDB loan or completion of tender thresholds.
