Officials promised monthly calls to update on Chinese debt renegotiations, their plans to cancel and delay loans, their tempestuous relationship with mining companies, and their hopes to secure International Monetary Fund (IMF) funding. Despite the authorities’ show of goodwill, four buysiders polled believed that a credit event in 2020 now looked inevitable.

The country’s most immediate Eurobond maturity, a USD 750m 5.375% 2022 bond, is quoted at 65 cents, with its 2024 and 2027 notes also converging towards the mid-60 mark, the first buysider said. The government has USD 600m left in debt repayments this year with USD 1.3bn in FX reserves. Eurobond coupons payments comprise USD 120m, including a USD 60m payment at the end of July, with the rest most likely owed to Chinese creditors, said the second buysider.

A Barclays report published on Tuesday noted that unless the country implements a clear change in policies and secures an IMF programme in the near term, default cannot be avoided.

“The alternative scenarios assume a muddle-through on current policies, which would likely result in an FX liquidity shortfall by 2020,” Barclays analysts wrote on Tuesday. “In this case, the two sub-scenarios would be (i) that Zambia is then forced into IMF cooperation eventually - which we believe would involve private sector involvement (PSI) in a broader debt restructuring at that point; or (ii) a ‘disorderly’ default.”

While informal talks are being held among bondholders, there is not yet a formal organisation to prepare for a default event, said the first and the third buysider. Much of the paper, around 30% to 35%, is still held by index trackers, who do not actively follow the credit, according to the third buysider.

If the government decides to restructure, it should do so sooner rather than later, said the third buysider.

“Restructurings, of the kind Zambia will need, will take at least two years, which means that they are in full-on election period by then,” said the third buysider, pointing towards the general election incumbent President Edgar Lungu will have to fight in 2021.

On the government side, a financial advisor remains to be officially appointed, according to three sources familiar. Zambia’s cabinet will meet in two weeks’ time to iron out the details of their plans to cancel or delay debt (a promise already made in 2018), according to the first, second and fourth buysiders, who listened to the call.

“The pipeline to be disbursed consists of USD 1.2bn each year on average for the next three years,” said the second buysider. “That's the number that could be reduced. However, ultimately the top level of the government decides rather than the finance ministry, and it's unlikely they agree to sizeably and sufficiently reduce the debt pipeline.”

“There are many projects the government could cut without impacting growth in a meaningful way, despite what the finance minister says,” said the first buysider. “But the vital projects like the [Kenneth Kaunda International] airport, the [Kafue Gorge Lower] Power Plant and the [Chipata-Serenje] railway line are also the costliest.”

Penalties for debt cancellation or delays also have to be accounted for, likely adding to the government’s headaches, the fourth buysider said.