African Lender Weighs Claiming Lloyd’s Payout on Zambia Debt

TDB Group, an African trade and development lender, is considering claiming insurance on debt it’s owed by Zambia that has become entangled in a complex restructuring process.The southern African nation, which defaulted in 2020 and later sought to rework around $13 billion of external loans, has said it’s including about $500 million it owes to TDB in that process. The government must seek similar relief to what other creditors provided, requiring TBD to agree to losses.

That could lead TDB to call in insurance it has with a Lloyd’s of London syndicate for a portion of the debt, Admassu Tadesse, the lender’s managing director, said in an Aug. 2 interview in Rwanda’s capital, Kigali. He cautioned, though, that doing so may have “systemic” ramifications for trade finance on the continent.

“The reason they would come in and share a risk with us is because they didn’t expect trade finance credits to be pulled into restructuring,” he said. “If mistakes are made and important rules are broken, then I think trade finance will dry up.”

TDB — together with the African Export Import Bank — has found itself at the center of an increasingly contentious debate about including the lenders’ facilities in sovereign-debt restructuring on the continent. While Afreximbank is adamant it won’t participate, TDB is discussing further debt relief with Zambia, which may lead to losses and, in turn, prompt the insurance claim.

“It’s part of the picture and we’re definitely looking at that very closely,” Tadesse said of the insurance claim. “It may very well be triggered in the final analysis.”

Lloyd’s declined to comment.

The risk of being included in sovereign debt workouts has already had a negative credit-rating impact for Afreximbank and TDB, with bond yields rising.

TDB has a total country exposure to Zambia of $872 million, of which it has insurance for about $348 million, according to the group’s 2024 annual report, which doesn’t break down how much is sovereign and private.

The lender intends to offer Zambia another round of restructuring in “a matter of weeks or months,” Tadesse said. It had already rescheduled the debt in the immediate wake of the COVID-19 pandemic.

Malawi Exposure

Malawi, Zambia’s eastern neighbor, is going through its own restructuring process, and TDB has more than $530 million of exposure to that country, with $214 million insured, its annual report showed. The government is in default on its commercial loans, which include TDB and Afreximbank debt, according to the International Monetary Fund.

Afreximbank and TDB were both expected to provide debt relief to Malawi as part of the government’s restructuring strategy, the IMF said this week.

TDB’s lending to Malawi involves revolving trade-finance facilities, which Tadesse said should be excluded from any restructuring as the funding is for crucial imports like medicine, fuel and food.

“In the world of debt restructuring, trade finance generally is left out of restructuring for very good reasons,” he said. “If you involve short-term trade finance in debt restructuring, you literally lock a country out of the world.”

TDB also has $638 million of country exposure to Ethiopia, which, like Zambia, is using the Group of 20’s Common Framework to rework its debts. Those trade finance facilities have been left out of the restructuring, Tadesse said.

“At the moment there’s no concern” they’ll be included, he said. “There are already payments coming through and they’re redrawing.”

–With assistance from David Herbling and Leonard Kehnscherper.

Photograph: The city skyline of Lusaka, Zambia, on Thursday, Sept. 21, 2023. Photo credit: Zinyange Auntony/Bloomberg