Debt restructuring is a process that allows a company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations or avoid defaulting in the case of a sovereign state.
The debt restructuring process is typically carried out by reducing the interest rates on loans, by extending the dates when the liabilities are due to be paid, or both. These steps improve the firm’s chances of paying back the obligations. Creditors understand that they would receive even less should the state default.
And in Zambia, the government has awarded a US$5 million contract to French company Lazard Freres for the provision of advisory services to the country in relation to the liability management of its debt portfolio.
Other bidders that included ABSA Bank and Barclays Bank PLC, Rothschild & Co, White Oak Advisory Ltd, Potomac and Deutch Bank have since been notified of the award of the tender to Lazard Freres.
Lazard is also advising Argentina’s government on its current debt restructuring talks with creditors. After Argentina defaulted on its debt this month, Zambia is seen as a next big test for whether debt-distressed countries can secure deals with their creditors in the pandemic’s market turmoil.
Zambia is facing $1.5bn of debt payments this year, more than its official international reserves as of January. Fitch Ratings cut Zambia’s credit rating to double C in April and said that default was “probable”. “Government has no intention of unilaterally restructuring debt without consulting creditors,” the finance ministry said. “We will respect agreements and diligently use market-based instruments in our debt management,” it added.
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