The International Monetary Fund logo is seen outside the headquarters building during the IMF and World Bank Spring Meeting in Washington, U.S., April 20, 2018. REUTERS/Yuri Gripas/File Photo

LONDON, Sept 14 (Reuters) – Zambia’s international bondholders have called the International Monetary Fund’s framework for debt restructuring and the country’s domestic debt foreclosure “arbitrary”, sources told Reuters. involved in the process.

Zambia has been in default for nearly two years and an IMF debt sustainability analysis released last week called for its debt service-to-exports ratio to be reduced to a “threshold” of 140% from from 153% quickly to 84% by 2027.

“Now all of a sudden they have an arbitrary number of 84%,” said Kevin Daly, head of emerging market debt at Abrdn, who chairs a committee of bondholders estimated to own about 45% of the $3 billion. dollars of Zambia’s debt on international markets. .

“How did you arrive at this figure? It’s such a different figure from the threshold (140%),” he told Reuters, calling on the IMF to meet with bondholders, who have complained about to be left behind as the IMF and bilateral creditors hatch a plan.

IMF spokesmen did not immediately respond to a request for comment.

Zambia’s long-delayed debt restructuring is seen by analysts as a test case for what is expected to be a series of defaults in poorer countries that have borrowed heavily not only from capital markets but also from countries like China.

David Malpass, president of the World Bank, the IMF’s sister organization, said last week that “deep debt reduction of 45% in net present value (NPV) terms…is essential.”

Relief of this magnitude “would not be acceptable (to) creditors,” including Chinese lenders, Daly said.

He declined to say what other bondholders would accept, but said that from his perspective, “if it was anything more in the range of … 20 to 30%, I think it would be acceptable.”

A bond salvage value of $65 to $75, with an exit yield of 11 to 12 percent, was “realistic,” he said.

Bondholders are also unhappy that $11.6 billion in local currency debt, including $3.2 billion held by foreign investors, is being excluded from the restructuring, said a second source involved in the process.

The person, who knows the committee’s position but spoke on condition of anonymity, said it implied that such debt would then effectively take precedence over Eurobonds, which are governed by international law.

He also questioned whether it would be fair to include local currency debt not subject to restructuring in debt targets, as this “compresses the amount of debt service available for servicing external debt” . Still, he said, bondholders were “aware” that local debt restructuring could cause problems for Zambia’s banking sector.

Reporting by Rachel Savage; Additional reporting by Marc Jones and Karin Strohecker in London; Editing by Andrea Ricci

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