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Friday, September 25, 2020/ 02:00PM / United Capital Research /
Header Image Credit: DW
A few days ago, the
republic of Zambia became the first country in Africa to default on a debt in
the wake of COVID-19. This was as the country's ministry of finance announced a
consent of solicitation to suspend interest payment (worth $120.0mn) on its
three outstanding Eurobonds (totaling $3.0bn) till April-2021. Following the announcement,
the prices of the country's outstanding Eurobonds plunged to nearly half their
face value.
Notably, the situation in
Zambia was unsurprising to us as we had earlier noted in our H2-2020 outlook
report that debt sustainability was a big concern for African countries in the
wake of COVID-19, especially with regards to external borrowings amid declines
in the price of key export commodities of most African countries.
Although, Zambia was in a
dire situation compared to peers since the country had just 1.8-month worth of
import cover and a debt to GDP ratio of about 88.6%. Notably, this development
draws us to Angola, which also has a worrisome debt to GDP ratio of over 100%
and projected by Angolan government to further hit 120% by the end of 2020.
Even though Angola has negotiated $6.0bn in debt relief with some of its
lenders and promised to fulfill its debt obligations, the country remains at a
high risk of default on its 5 outstanding Eurobonds, especially if crude oil
prices fall further. While we expect these SubSahara African sovereigns to
ultimately service their obligations, the Zambia and potentially, the Angolan,
default worries may worsen the credit risk premium for SSA issuers in the
international capital market
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