Zambia External Bondholder Steering Committee Statement Regarding OCC Stance On Comparability Of Treatment


(MENAFN- PR Newswire) 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 the
AIP
was
compatible
with
the
targets and
parameters
of
the
Debt
Sustainability
Analysis embedded
in
the
approved 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 "Revised
AIP")
published
by
the
Government
earlier
today
is
compatible
with
the
IMF
program
parameters
and 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.

The
Committee's
Revised
AIP
provides
for more debt
relief on
an
NPV
basis
than
that of the
OCC
(in
addition
to 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 with
the memorandum of understanding ("MOU") agreed between the OCC and the Government, despite: (i) the IMF's
position that
the
revised proposal meets
IMF
program parameters
and
DSA
targets;
and
(ii)
the
fact 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 creating
very clear inter-creditor equity issues and is going far beyond the OCC's
envisaged role
under
the
Common 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 bondholder
will accept official bilateral
creditors
seeking to
re-negotiate
the
terms
of the restructuring
agreement they reach with a sovereign debtor in circumstances where the IMF has confirmed that an agreement already meets
its
own
requirements
for
restoring
debt
sustainability.
It
is
not
for
official bilateral
creditors
to
dictate
debt terms to other creditors in circumstances where the Government has confirmed Comparability of Treatment.

Given
the
fiduciary
duty
they
owe
their
clients, the
Committee
cannot
possibly
consider or
countenance
providing 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 taken
by
the
OCC
now
make
it
very
challenging
to
resolve
the
situation
in
a
sufficiently
timely
manner to
allow for an agreement with bondholders to be implemented within the required timeframe.

The
Committee continues
to
stand
ready
and
willing
to
implement
the
Revised
AIP,
supported
by
the
Government 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.

The
Creditor Committee
is
being
advised by
Newstate
Partners and
Weil Gotshal
& Manges
(London) LLP Questions can be directed to:

Spencer
Jones,
Newstate
Partners LLP,
+44
20
3077
4916
or
[email protected]
Annie
Emery, Newstate
Partners
LLP,
+44
20
3077
4915
or
[email protected]
Andrew
Wilkinson,
Weil,
Gotshal &
Manges
(London) LLP,
+44
20
7903
1068
or
[email protected]

For
media
enquiries:

Greenbrook,
+44
20
7952
2000,
[email protected]

Appendix

Debt Relief
Indicator

Weak
Case

Medium
Case

OCC

Bondholders

OCC

Bondholders

Nominal haircut1

0
%

16
%

0
%

16
%

Duration
extension

12 years

8 years

6 years

6 years

Contribution
to
the
financing
of
the programme (2023-2025)


95
%


80
%


95
%


80
%

Overall
Debt
Relief

(PV/PV
@5%)2

39
%

41
%

13
%

18
%

Overall
Debt Relief
(PV/PV
@5%) (including consent fee)

39
%

40
%

13
%

17
%

1
Nominal haircut calculated on contractual claims.
2
OCC methodology
comparing
the
PV
of
post-restructured
debt
to
pre-restructured
debt,
evaluated
at
5%
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.

SOURCE The Zambia External Bondholder Steering Committee

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