Zambia’s plan to seize copper mines stuns investors

Vedanta’s Konkola Copper Mines, Zambia. Image courtesy of Konkola Copper Mine Plc

Zambia’s Eurobond yields rose to record highs after the government of the cash-strapped copper producer said it’s planning to seize Vedanta Resources Ltd.’s mining assets.

The yield on the southern African nation’s $750 million of securities maturing in September 2022 climbed 81 basis points to 19.74% as of 10:43 a.m. in London. Rates on notes due in April 2024 rose 51 basis points to 19.02%. No other nation apart from Venezuela, which is in default, has yields as high.

The spat with copper miners is the latest news to unnerve fixed-income investors, who are concerned that Zambia may default unless it gets a bailout from the International Monetary Fund or negotiates easier terms on loans from China.

The country’s Eurobond curve is now inverted, a rare occurrence and a signal that its assets are well into distressed territory.

Finance Minister Margaret Mwanakatwe said Monday in a statement that Zambia was committed to a flexible exchange rate and would not introduce capital controls. The kwacha has weakened 14% against the dollar in 2019 — the second-worst performance globally after Argentina’s peso — to 13.81, which is making Zambia’s external borrowings more expensive to pay off.

“I don’t see a default in 2019 but as we get closer and closer to the first bullet payment in 2022, that probability increases,” Neville Mandimika, an analyst at Rand Merchant Bank in Johannesburg, said on Monday. With the kwacha, “it just seems like a one way bet. The markets are getting into another round of panic again,” he said.

(By Paul Wallace and Matthew Hill)