Zambia Sells Record $1.25 Billion of Bonds to Fund Budget Gap

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Zambia sold $1.25 billion of Eurobonds in its third and biggest offering to international markets as it seeks to plug a budget deficit that surged to more than double the government’s target by mid-year.

Africa’s second-biggest copper producer raised $1.25 billion from the notes, which will be redeemed between 2025 and 2027 and carried a coupon rate of 8.97 percent, the country’s mission to the United Nations said in an e-mailed statement.

Zambia is struggling to meet budget targets after a tax dispute with mining companies and a power shortage hurt output as copper prices hovered near six-year lows. Standard & Poor’s this month cut Zambia’s credit rating to B, five levels below investment grade, with the outlook changed to stable from negative as the country’s deficit ballooned by more than expected.

“The elevated primary-market funding cost appears to reflect investors’ concerns about fundamentals,” Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc, said before the official announcement of the sale results.

The yield on Zambia’s bond due in April 2024 rose four basis points to 8.9 percent at 10 p.m. Zambian time on Thursday, heading for a record high. Zambia joins African countries including Tunisia, Gabon, Egypt and Ivory Coast in issuing dollar debt this year.

Power Supply

Growth in gross domestic product will probably slow to less than 5 percent in 2015, short of Finance Minister Alexander Chikwanda’s revised forecast of 5.8 percent, Chrispin Mphuka, president of the Economics Association of Zambia, said July 20. That’s because of a 560 megawatt power shortage, equal to about a quarter of normal supply, that will also drive inflation higher, he said.

The energy deficit may weigh on copper output, which the country relies on for about 70 percent of its export earnings. Mines Minister Christopher Yaluma in June predicted a drop in production this year even before the electricity crunch, caused by low dam levels at hydropower stations.

Copper prices fell to a six-year low of $5,240 a metric ton on July 8 and are down more than 15 percent this year.

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