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A group of investors holding Zambia’s US$1.36 billion 2053 international bonds has opposed government’s proposed buyback offer, arguing that the terms undervalue the debt and could prevent investors from benefiting from future gains as the country’s economic outlook improves.
The resistance comes as Zambia moves to conclude its post-default debt restructuring through a debt-for-energy swap arrangement aimed at directing future debt-service savings towards strengthening the country’s electricity infrastructure.
According to market participants cited in an Access Bank market commentary for Tuesday, bondholders are concerned that if at least 75 percent of the bonds are tendered, the government could invoke a “clean-up call” provision and redeem all remaining outstanding bonds.
“Bondholders are concerned that if at least 75 percent of the bonds are tendered, Zambia could invoke a ‘clean-up call’ provision to redeem all remaining bonds, preventing investors from benefiting from a potential increase in coupon payments,” the commentary stated.
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The bonds were issued in 2024 as part of Zambia’s debt restructuring programme following the country’s sovereign default in 2020.
They currently carry a coupon rate of 0.5 percent, but investors expect the rate to rise if Zambia achieves debt sustainability targets agreed under its International Monetary Fund (IMF) programme.
Some bondholders believe the government’s decision to launch the buyback signals confidence that the first debt sustainability milestone, expected as early as this month, will be achieved.
“The government’s decision to launch the tender signals confidence that the step-up condition will be met, making the bonds significantly more valuable,” the commentary noted.
Under the offer, Zambia is proposing to repurchase the bonds at US$780 for every US$1,000 of principal tendered before June 5, with the price falling to US$740 for bonds tendered after that date.
The buyback is being financed through a US$600 million facility provided by the African Development Bank, supplemented by government resources.
The transaction is a key component of Zambia’s debt-for-energy swap initiative, which analysts have described as an innovative approach to debt management that will channel future debt-service savings into investments in the national electricity grid.
However, while some analysts view the offer as an attractive opportunity for investors seeking to secure immediate gains, others maintain that the bonds could be worth considerably more if Zambia’s economic recovery and debt sustainability targets are achieved.
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