The Zambian authorities’ tender offer to buy back its Bond B does not constitute a distressed debt exchange (DDE), Fitch Ratings says.
The global rating agency issued a commentary note after Zambia made a tender offer that will expire on 10 June 2026, with settlement expected two days later. The note seeks to clarify whether Zambia’s offer constituted a distressed debt exchange at the time.
“If the bond can be redeemed in full, the sovereign would avoid additional costs that could be triggered under its upside case treatment, Fitch said. “We believe there is a reasonable chance this case will be triggered if the bond is not fully redeemed”, Fitch said.
Explaining further, Fitch said the tender offer does not aim to avoid a traditional payment default, as analysts believe Zambia has the capacity to service this bond under both the baseline and upside case scenarios.
“Instruments held by those not participating in the tender will continue to be serviced according to their original terms and the buyback price offered is above the secondary market price prior to the tender, which captures a high probability of the upside case being triggered. These factors support our view that this is not a DDE”.
Fitch said Bond B has outstanding principal of USD1.36 billion. Under its base case, this pays a 0.5% annual cash coupon and amortises in three equal instalments in 2051, 2052 and 2053.
“If the upside case is triggered, from the trigger date the bond pays a 1.5% cash coupon and a 6% capitalised coupon until June 2031 and a 7.5% cash coupon from June 2031 to maturity”.
Maturity is also accelerated, amortising in four equal instalments in 2032, 2033, 2034 and 2035.
The upside case is triggered if the IMF assesses Zambia’s debt-carrying capacity (DCC) as ‘medium’ instead of ‘weak’ for two consecutive semi-annual periods between 1 January 2026 and 31 December 2028, or if the three-year average of both Zambia’s export receipts and its fiscal revenue (excluding grants) in US dollars outperforms the IMF’s forecasts as laid out in December 2023 in the second review of its Extended Credit Facility.
Fitch analysts believe it is unlikely the upside case will be triggered by the second condition, and hinted that they have more conservative forecasts than the second review for exports, although it is likely that Zambia’s fiscal revenue will outperform the review’s projections due to high copper prices and a large appreciation of the Zambian kwacha since early 2026.
“We believe it is likely the DCC assessment will be raised to ‘medium’ from ‘weak’ in 2026, 2027 or 2028, on a combination of higher import coverage of reserves and real GDP growth”.
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