Zambia has launched a US$1 billion 10-year Eurobond at a final yield of 8.625%, according to government sources.
The bond was oversubscribed by US$4.25bn, much lower than last time. Zambia began marketing the bond at 8.75%-8.875% earlier on Monday. Barclays and Deutsche Bank are the lead managers.
(Source: Wall Street Journal)
WHAT THIS PRACTICALLY MEANS
As this is a 10 year bond, Zambia will be paying interest of 8.625% or $86m per year for the next 10 years. It will then need to pay back the final $1bn in 2024.
Zambia is currently paying around $42m interest annually on its first Eurobond of $750m. It is due to pay back the full $750m in 2022.
This situation will become even trickier if the Kwacha continues to decline and the funds are not used to invest in capital projects that increase GDP.
When the currency hovered around K5.6 to the dollar, the interest payment on this bond were estimated to be K481 million Kwacha. Today at a rate of K6.3 to the dollar, those interest payments have risen to K541 million Kwacha annually.
All else being equal this now means more and more tax kwacha will be diverted from other areas to go towards debt servicing. Depending on what happens to Zambian currency over the next few years, The real challenge will come in 2021, for whomever is in charge, when the Kwacha equivalent of the $2bn as a lump sum becomes due.