Other African countries may not be able to repay their loans as the global pandemic hurts economic growth.

Livingstone, Zambia

Zambia’s default on a $42.5 million Eurobond coupon has shed light on other regional sovereign states that currently have low credit ratings and coupons due in 2021. Zambian debt payment is the sixth recent global credit default after Argentina, Belize, Ecuador, Lebanon and Suriname.

The focus is now on potentially risky credit sovereigns on the African continent. Angola, Nigeria, Ghana and Cameroon are among the African countries that currently have lower credit ratings from agencies such as S&P, mainly due to lower oil prices, contraction risks economy and the impact of Covid-19.

The Economist Intelligence Unit’s senior economist for the Middle East and Africa, Ben Craven, described a series of international debt instruments maturing in 2021 across Africa. While much of this private debt is owed to Chinese commercial creditors, there are a few Eurobond redemptions that investors will be watching in terms of risk to redemption profiles.

South Africa has a coupon of $3.5 billion, while Namibia, Nigeria and Senegal each have bullet repayments of $500 million to meet. However, according to Craven, who has expertise in credit risk in sub-Saharan Africa, Namibia is the only real concern, given that South Africa and Nigeria are “veteran issuers in the international bond market”. Senegal should get refinancing based on strong fundamentals ahead of the pandemic, he says.

It comes as Zambian Eurobond investors rejected government proposals to restructure and postpone the instrument’s redemption terms for another six months. Now, says Blessing Sibanda, an economics researcher at the University of Winchester, Zambia’s default will “send jitters to all investors, domestic and foreign”.

The other direct impact of this, said Tatonga Rusike of ratings agency S&P Global Global finance, is that it makes it “difficult to access new lines of credit” for Zambia. “Probably no other lender would want to lend money to a sovereign who has shown he cannot repay on time,” he says.

Eurobond holders will be the biggest victim of the default, Sibanda says, as they have to “take a haircut on their investment”, especially since Zambian debt is “already selling at a steep discount”.