BoZ mopping Dollars to pay Eurobond, Kwacha losing more value

BoZ mopping Dollars to pay Eurobond, Kwacha losing more value

 

The shortage of US Dollars and other major currencies is set to worsen as the Bank of Zambia is reportedly mopping (collecting) dollars from commercial banks and other financial institutions. BoZ needs all the dollars currently in Zambia in order for the PF government to pay interest on the Eurobonds which are now due. In turn, the Kwacha will lose more value. The kwacha is currently trading at more than K21 to a Dollar in commercial banks. On the streets, one Dollar costs about K21:40.
Zambia is supposed to pay interest on the huge Eurobonds the current regime has been borrowing . In September, the PF regime pleaded with creditors to delay demanding payment until April Next year. But according to Reuters, holders of Zambia’s Eurobonds plan to reject that request.
Reuters reports that Zambia has three outstanding dollar-denominated Eurobonds with a total face value of $3 billion.
It asked in September to delay interest payments until April but was forced to extend the deadline for creditors to vote on the payment deferral plan to Nov. 13 after failing to secure a quorum of bondholders.
Nov. 13 is also the end of the 30-day grace period for a $42.5 million coupon payment that was due on Oct. 14. Non-payment would push Zambia into default on its Eurobonds.
A person familiar with the thinking of the Zambia External Bondholder Committee — a large group of creditors holding more than 40% across all Zambia’s bonds and a blocking stake in each issue — said they were likely to reject the government’s plan.
“This time round, instead of taking no action, they will in all likelihood be obliged to vote against it as Nov. 13 is the cut-off for the grace period,” the source said.
“You can’t realistically begin a constructive and open dialogue while someone is holding a gun to your head.”
But new Bank of Zambia governor Christopher Mvunga does not even seem to know the current exchange rate. According to him, the Central Bank has stabilised the kwacha at an average range of K20.30 per dollar. Mvunga was speaking when he officiated at the Price Waterhouse Coopers (PwC) Zambia bank and non-bank survey launch.

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