Zambia Dollar Bond Yields Rise After Moody’s Downgrade, Kwacha continues depreciating

Screen Shot 2016-04-20 at 19.21.27 Screen Shot 2016-04-20 at 19.20.42Zambia will struggle to fund budget deficit amid rising yields,

Low copper prices and severe power shortage hampering growth, according to Blomburg news.

And the Kwacha has lost more value today and is set to continue plunging tomorrow.

Yields on Zambia’s Eurobonds rose after Moody’s Investors Service cut its rating of the debt and changed the outlook to negative from stable, citing a bulging budget deficit and rising government debt before August elections in Africa’s second-largest copper producer.

Yields on the country’s $1.25 billion debt due from 2027 rose by 4 basis points to 11.52 percent by 2:14 p.m. in Lusaka, the capital. The kwacha declined 0.3 percent to 9.29 per dollar. Moody’s on Tuesday cut its rating on Zambia’s Eurobonds to B3 from B2.

“The negative outlook reflects heightened uncertainty about spending in the run up to the August elections and uncertainty about the liquidity and funding position of the government over the next 12 to 18 months,” Zuzana Brixiova, an analyst at Moody’s in London, said in an e-mailed statement.

The Zambian economy is under “intense pressure” amid low copper prices, severe power shortages and poor rainfall, the International Monetary Fund said last month. The government will struggle to fund the deficit that’s estimated to top 7 percent of GDP this year, Moody’s said. The ratings cut may make financing even more difficult, according to Rand Merchant Bank.

“Moody’s actions will severely impact Zambia’s lending abilities in an already risk-averse environment as investors demand a sizeable premium to compensate them for a plethora of credit risks,” Johannesburg-based RMB analysts including Celeste Fauconnier said in a note Wednesday. “We believe that yields on Zambia’s current U.S. dollar offerings could drift higher.”

The country’s foreign exchange reserves, which stood at about $3 billion by Jan. 31, will fall to $2 billion to $2.3 billion this year, less than three months of imports, Moody’s said. Copper accounts for about 75 percent of Zambia exports.

 

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