Copper Weighing on Zambia Debt Seen Pushing Yields to Record

Sliding copper prices and an early presidential election are deterring investors in Zambian debt, the worst-performing dollar bonds in Africa this year.

The southern African nation’s Eurobonds lost 5.7 percent in 2015, the biggest decline among 58 emerging markets after Venezuela, according to Bloomberg indexes. The yields jumped 114 basis points this year to 8.24 percent on Jan. 14, the highest since April. Copper, which accounts for more than 70 percent of export earnings, dropped to the lowest level since July 2009, and is headed for biggest weekly drop in three years.

“Snap elections are approaching so there may be some more selling” of the debt, Richard Segal, head of emerging-markets credit strategy at Jefferies International Ltd., said yesterday by phone from London. “I wouldn’t be surprised if they were go to 8.6 percent or 8.7 percent.”

Copper is the worst-performing metal this year on the Bloomberg Commodity Index, which tumbled to the weakest in 12 years this week after the World Bank cut forecasts for global growth. Zambian voters will choose a successor on Jan. 20 to Michael Sata, who died in October. Defense and Justice Minister Edgar Lungu of Sata’s Patriotic Front will face former Vice President Nevers Mumba’s Movement for Multiparty Democracy and Hakainde Hichilema’s United Party for National Development.

The election is a contest between Lungu and Hichilema, Neo Simutanyi, director at the Lusaka-based Centre for Policy Dialogue, said in an interview yesterday. A leadership battle caused support to wane for Mumba, he said. Mumba pledged to review mining taxes the Chamber of Mines said would lead to closures, even before the copper-price decline, and which nearly triples royalties for some operations.

‘Precipitous Drop’

While the lower rates for the metal, which is used in piping and wiring, may not have a major immediate impact on Zambia’s economy, a “precipitous drop” might cause mines in Africa’s second-biggest producer of the metal to scale back their operations, Tobias Rasmussen, the International Monetary Fund’s resident representative, said in an e-mail on Jan. 14.

Yields on Zambia’s $1 billion debt due April 2024 fell seven basis points yesterday to 8.17 percent, ending four days of increases. The nation’s kwacha strengthened less than 0.1 percent to 6.5350 per dollar by 7:45 a.m. today in Lusaka, the capital, paring its loss this week to 1 percent.

“The recent weakening is more due to copper than politics” although there may be a “light rebound” with yields on debt improving after the elections, Stuart Culverhouse, the chief economist at Exotix Partners LLP in London, said by phone yesterday. Lower commodity prices may persist, which will drag on “Zambia sentiment for a longer period,” he said.

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