Kwacha expected to hold near K17 as Zambia advances Eurobond buyback plan

The Kwacha is expected to continue trading around the K17 mark against the United States dollar in the near term, supported by prevailing market forces of supply and demand, according to the latest market update from Absa Bank Zambia. The local currency, however, lost ground on Friday as increased demand for foreign currency emerged amid expectations of further depreciation. Absa Bank Zambia reported that the Kwacha was quoted at K17.50 and K17.55 on the bid-offer market before closing the trading session at K17.55 and K17.60 against the US dollar.

“The local unit’s interbank was quoted at K17.50 and K17.55 on the bid-offer before closing the session at K17.55 and K17.60. Near term, the Kwacha is expected to trade around these new levels relative to market forces of demand and supply,” the bank stated. Meanwhile, Zambia has recorded a major breakthrough in its efforts to buy back its 2053 US dollar-denominated bond after securing the support of a key group of bondholders holding more than 25 percent of the outstanding notes.

According to Access Bank Zambia, the creditor group, which had initially opposed the transaction, agreed to participate in the revised tender offer after the government improved the offer price and extended the participation deadline. The bank said the development removed a significant obstacle to the transaction and substantially improved the prospects of a successful bond buyback. Access Bank noted that investors had previously expressed concern that the tender offer might fail to attract sufficient participation without the support of the influential bondholder group.

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“A failed tender could have undermined Zambia’s planned debt-for-energy swap, which is backed by the African Development Bank (AfDB). The transaction is designed to use savings from the bond buyback to finance investments in Zambia’s electricity grid, helping address the country’s energy infrastructure needs,” the bank said in its market watch report. The report further noted that some investors had considered retaining their bonds in anticipation of a sharp increase in coupon payments from 0.5 percent to 7.5 percent beginning in December.

However, Zambia recently indicated that a key debt sustainability metric stood at 2.60 during the first half of the year, below the 2.69 threshold required to trigger the higher coupon rate. This reduced the incentive for bondholders to hold on to the securities. To encourage greater participation, the government increased its offer to 84.35 cents on the dollar for investors who tender their bonds by June 9, while those participating after the deadline will receive 74 cents on the dollar. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express permission from ZAMBIA MONITOR.

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