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What Is Debt Restructuring?

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.

Copyright © 2020 ZR.

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9 Comments

  1. edgar chibuta

    thanks for the information ZR and this is the type of reporting we need. Suffice to say the article is too short

  2. Truth man

    Surely this is beyond my understanding..managing a debt, does it require a foreign ‘investor’? Paying out dear million dollars just to manage foreign debt? Is this admitting failure or what on our part? Please advise and explain to me someone!

  3. Starboy

    So should we go back in class and start learning about debt restructuring after selling all our valuable natural resources to foreigners? Which independence are you talking about? Looking at the level of poverty the country is going through can you even stand up and start celebrating the 50 years of independence? If we don’t wake up, we will find ourselves struggling to get a second independence

  4. Goodman

    Surely, someone must explain to us why we should spend so much money on a foreign company to come and advise us on how we should manage our debt. Where is BOZ, Ministry of finance and national planning and strong goverent wings who can

  5. James Mbuzi

    Surely, someone must explain to us why we should spend so much money on a foreign company to come and advise us on how we should manage our debt. Where is BOZ, Ministry of finance and national planning and other strong government wings who can advise on debt servicing. We are struggling to raise USD 2.5 million to invest in gold mining yet we are ready to spend USD 5million on consultation that can even be done BOZ. Madam government, where are u?????????

  6. Koswe

    I am passing through serious pandemic period and no one is ready talking about retirees now feeding people who lack nothing on earth. Surely paying a foreign investor us$5milloin on a silver plate to restructure debt payment leaving our own institutions is a scandal to the nation corruption at its peak

  7. wright

    in think this a joke why spending money you say u don’t have we don’t even have a 2.5 million to process gold these people in pf they are taking us for a ride

  8. Yiluma Francis

    This is sensible reporting.

  9. Juass

    Who requested the government to look for a foreign company to give them advice how to service the loans,why did they not heed to advice when they were getting the loans I feel that money should be given to retirees who have suffered so much some have died because of depression respect elders for your days on earth to be multiplied says the Lord.

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