By Financial Times Uk
* On Friday, Moody’s downgraded its rating on Zambia further into junk, or non-investment grade territory, citing concerns about liquidity pressures and a rising probability of default. The kwacha is already the world’s second worst performing currency this year.
Vedanta Resources has started its fightback against an attempt by the government of Zambia to seize control of its Konkola Copper Mines (KCM) unit.
At a court hearing on Friday, Vedanta, which is controlled by Indian metals tycoon Anil Agarwal, challenged a decision to liquidate lossmaking KCM.
The case has been adjourned until June 5. Until that time KCM will continue to be run by a court-appointed liquidator.
KCM is 80 per cent owned by Vedanta and 20 per cent by state-controlled Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH).
As majority shareholder, Vedanta is trying to ensure is it part of the liquidation proceedings, which until now have only involved ZCCH-IH.
“Vedanta has serious concerns about the intentions of the applicants and the procedures that were followed by ZCCM-IH as a representative of government to obtain a provisional liquidation order on an ex parte basis against KCM in an apparent misuse of the legal process to date,” Vedanta said in a statement.
The move by the government of President Edgar Lungu to seize control of KCM, one of Africa’s biggest copper producers, has rattled investors already concerned about the country’s ability to service a debt burden of around $10bn.
Zambia cited breaches of KCM’s operating license and its financial position as justification for its move to place the company in liquidation.
While President Lungu is unlikely to backdown in his battle, analysts think a settlement could be reached if Vedanta offers a windfall payment or an increased share of profits to ZCCM-IH. This would help Zambia to make repayments on its Eurobonds.
On Friday, Moody’s downgraded its rating on Zambia further into junk, or non-investment grade territory, citing concerns about liquidity pressures and a rising probability of default. The kwacha is already the world’s second worst performing currency this year.
Without an IMF bailout or a “debt re profiling” with some external creditors, including China, Moody’s said Zambia’s reserves would continue to decline.
“The narrow reserves buffer leaves Zambia’s external position highly vulnerable to even small shocks, in particular to a fall in prices or production of copper or adverse business environment developments, that would significantly impair the government’s ability to service its external debt obligations,” it said.