Zambia is reportedly considering increasing the price on its buyback proposal for the 2053 sovereign note to 85 cents on the dollar, according to Morgan Stanley. The potential revision follows pushback from a group of bondholders who rejected an earlier offer.
The prospective 85-cent price would be roughly a 9% rise from the 78 cents per dollar that Zambia offered to early participants last week. That initial proposal drew opposition from an ad hoc investor group holding more than a quarter of the outstanding bonds.
Analysts at Morgan Stanley say a buyback settled around 85 cents could bring investor acceptances close to the 75% level required to activate a clean-up call mechanism. If that threshold is met, the clean-up call would permit Zambia to redeem any remaining bonds on the issue, simplifying settlement of the obligation, the bank's emerging-market strategist Neville Mandimika said. His assessment reflects conversations with Morgan Stanley clients.
Mandimika flagged that uncertainty persists over the price the dissenting bondholder group would accept. He noted that if that group uses Ghana’s 2035 yields - approximately 6.5% - as a reference for fair value, Zambia’s 2053 securities could be valued nearer to 97 cents on the dollar.
"On that basis, 85 cents may still be viewed as too low," Mandimika wrote in a client note, underscoring the unresolved gap between the offer and some bondholders' valuation benchmarks.
The discussions described by Morgan Stanley leave the outcome uncertain. A higher offer could materially improve the chance of reaching the clean-up call threshold, but the bank's analysis also shows there is no clear consensus among holders about what constitutes an acceptable price.
Clear summary
Zambia may raise its buyback proposal for the 2053 bond to 85 cents from the initial 78-cent offer. That increase could nudge acceptances toward the 75% level required for a clean-up call, but a significant bondholder group that controls more than a quarter of the issue opposed the original price and might still find 85 cents inadequate if it benchmarks fair value to Ghana’s 2035 yields, which imply a valuation closer to 97 cents.
Key points
- Zambia is considering lifting its buyback offer on the 2053 note to 85 cents per dollar, about a 9% rise from the earlier 78-cent offer made to early participants.
- An ad hoc group owning more than 25% of the bonds opposed the initial offer, and its stance remains a pivotal factor in whether the buyback succeeds.
- A buyback at roughly 85 cents could push acceptances near the 75% threshold needed to trigger a clean-up call, which would allow Zambia to redeem remaining bonds.
Risks and uncertainties
- It is unclear what price the dissenting bondholder group would accept; their opposition could prevent the buyback from reaching the 75% threshold.
- If holders benchmark fair value to Ghana’s 2035 yields of around 6.5%, Zambia’s bonds could be valued closer to 97 cents, meaning an 85-cent offer might still be deemed insufficient.
- Even with a higher offer, there is no certainty the required level of acceptances will be achieved because the assessment depends on conversations with clients and the preferences of major holders.