TIDM32BT
RNS Number : 3934R
Zambia (Republic of) (MoF)
26 October 2023
NOT FOR DISTRIBUTION IN ANY JURISDICTION IN WHICH SUCH
DISTRIBUTION WOULD BE PROHIBITED BY APPLICABLE LAW
Government of the Republic of Zambia Reaches Agreement in
Principle on Debt Restructuring Terms with the Steering Committee
of the Ad Hoc Creditor Committee of holders of Zambia's
Eurobonds
Lusaka, Zambia, October 26, 2023 - The Ministry of Finance and
National Planning of the Government of Zambia (the "Government"),
advised by Lazard Frères and White & Case, acting respectively
as financial and legal advisors, is pleased to announce that
following private discussions with the members of the Steering
Committee (the "Steering Committee") of the Ad Hoc Creditor
Committee (the " Committee"), advised by Newstate Partners LLP and
Weil, Gotshal & Manges LLP, between October 9 to 26, 2023, it
has reached agreement in principle with the Steering Committee on
the key commercial terms of a proposed restructuring transaction
(the "Restructuring") relating to the Government's bonds due 2022,
2024 and 2027 (the "Bonds", and the holders thereof, the
"Bondholders"). The members of the Steering Committee currently own
or control approximately 18% of the outstanding Bonds, while all
the members of the Committee currently own or control more than 40%
of the outstanding Bonds.
Pursuant to the agreement-in-principle, Bondholders will be
invited to exchange and/or vote in favor of a consent to amend the
terms of their Bonds for new fixed income instruments representing
unsecured obligations of the Government (the "New Bonds"). The New
Bonds will be issued on the commercial terms outlined in Annex A
hereto.
The Government believes the agreement in principle is compatible
with the targets and parameters of the Debt Sustainability Analysis
embedded in the approved IMF programme, the Comparability of
Treatment principle as agreed with its Official Creditor Committee,
and achieves the Government's need for debt relief. The agreement
in principle builds upon the same principles agreed upon with its
Official Creditors Committee through a Base Case Treatment and
Upside Case Treatment depending on Zambia's future debt carrying
capacity. The New Bonds are comprised of two bonds, Bond A and Bond
B. The financial terms of Bond A remain unchanged in both the Base
Case and Upside Case treatments. However, in case the Upside
Treatment is triggered, the financial terms of Bond B will improve
through an accelerated payment schedule and higher interest rates.
The Government acknowledges that a one-time validation test based
on the debt carrying capacity assessment by the IMF and the World
Bank to determine whether the Upside Case Treatment would apply may
not form the basis of a marketable instrument. To ensure liquidity
and adequate market pricing of the New Bonds, the agreement in
principle entails a dual trigger mechanism.
The agreement in principle entails important concessions from
the Bondholders, while providing the required debt relief to the
Government. Under the agreement, Bondholders would permanently
forego approximately $700 million of their claims, and provide cash
flow relief of approximately $2.5 billion during the IMF programme
period. Respective weighted average maturity will be 15 years and 9
years under the Base Case Treatment and the Upside Case Treatment.
As a result, the present value concessions from the Bondholders at
current market rates will be significant. However, these
concessions are necessary given the restraints faced by Zambia and
are essential to achieve the relief required under the Debt
Sustainability Analysis to restore financial stability to the
country.
The Government and Restricted Investors intend to put their best
efforts to finalize the execution of this agreement in principle by
year-end, with the implication that the exchange offer needs to be
launched no later than the third week of November.
The Restructuring will be implemented through an exchange offer
and/or consent solicitation. Implementation of the Restructuring
remains subject to agreement between the Government and the
Steering Committee on the definitive legal documentation for the
New Bonds and exchange offer and/or consent solicitation.
This announcement is made by the Government and constitutes a
public disclosure of inside information under Regulation (EU)
596/2014 (16 April 2014).
ANNEX A
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 [1] 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. [2]
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.
Note: 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.
***
This press release does not constitute an offer of the New Bonds
for sale in the United States, and the New Bonds (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 the New Bonds 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 New Bonds 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 the
New Bonds or otherwise making them available to retail investors in
a Relevant State has been prepared and therefore offering or
selling the New Bonds 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] 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.
[2] 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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