China is behind billion dollar debt restructure for Angola, analysts say
- Reprofiling of debts also unlocks US$765 million from IMF for Angolan economy hit by oil price fall and Covid-19
- The two ‘large creditors’ have not been named but they are likely to be Chinese banks
China is believed to be the mystery lender behind a reprofiling of Angola’s loans, helping the Southern African country unlock US$1 billion and a further US$765 million from the International Monetary Fund (IMF).
However, negotiations to restructure a major loan advanced by the China Development Bank remained contentious, according to analysts.
The IMF said Angola – Africa’s second largest oil producer – had “reached agreements on reprofiling selected debt” with two of its big creditors, which were not named, and was “in discussions with them to finalise the operational modalities of these agreements”.
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The Angolan economy, in recession for five consecutive years, has been hard hit by the recent drop in oil prices. The resource makes up 95 per cent of exports and two-thirds of government revenue. According to the IMF, Angola’s debt-to-GDP ratio is projected to be 123 per cent at the end of this year.
The IMF report said a debt reprofiling deal signed in June with one of the major creditors would provide Angola with a three-year moratorium on principal payments. The repayment of deferred principal – falling due between the second half of 2020 and 2023 for the largest facility – would be repaid over seven years after the grace period.
An agreement with a second large creditor was being worked out with a similar reprofiling of principal payments, the report added.
IMF deputy managing director Antoinette Sayeh said Angola had “secured debt reprofiling agreements from several large creditors to reduce risks related to debt sustainability”.
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The IMF declined to name the creditors referred to in its report, but analysts said the deals involved Chinese lenders, including China Exim Bank, China Development Bank (CDB) and the Industrial and Commercial Bank of China (ICBC).
Beijing has not made public any debt relief provided for Angola, although it had reached agreement with more than 10 countries by the end of July, according to China’s foreign ministry.
According to the foreign ministry, Beijing had received more than 20 requests since the G20’s debt freeze agreement was adopted in April. China has not said which countries have benefited from debt relief.
Mark Bohlund, a senior credit research analyst at New York-based REDD Intelligence, said China had agreed to reprofile the debt from China Exim Bank “but is still opposed to reprofiling the loans from China Development Bank without similar operations being undertaken on commercial debt from other nations”.
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CDB had advanced about US$15 billion of the US$20 billion owed to Chinese creditors at the end of 2019, according to REDD Intelligence.
The World Bank, supported by the G7 members, wants this debt included in the Debt Service Suspension Initiative (DSSI), a G20 deal that offers relief for payments due between May and December this year to 73 low-income countries – mostly in Africa and some in Asia – affected by the coronavirus pandemic.
CDB mainly provides loans at commercial, rather than concessional, terms, “which is presumably why Beijing argues that it should be treated in the same way as other commercial lenders”, Bohlund said.
Chinese Finance Minister Liu Kun said recently the World Bank “should lead by example in suspending debt service” and take part in the G20 debt deal but this has been resisted by other World Bank/IMF members.
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Further, China’s central bank governor Yi Gang also said in July that the IMF should issue new Special Drawing Rights (SDR) and allocate them to the worst-hit countries.
According to Bohlund, “what could emerge as an acceptable compromise for all parties is a conversion of some of the CDB debt into equity or other assets” – by using part of the debt for a minority stake in state-owned oil producer Sanangol.
Besides the deal with China Exim Bank, Bohlund said negotiations with CDB and ICBC were at an advanced stage.
A debt restructuring deal from China, Angola’s largest lender, was reportedly a precondition of IMF approval for any further funds for the country – an approach the institution has used before, when it suspended the release of money to Congo-Brazzaville until it had restructured its loans with Beijing. Zambia has been in the same situation.
On July 30, the IMF board put its meeting for a third review of Angola’s progress under the Extended Fund Facility on hold, preferring to wait until Luanda had secured a debt restructure with China. Concerns had been raised that IMF money would be used to repay Chinese lenders.
On August 31, members of the Paris Club, made up of the major creditor nations, approved debt relief to Angola, allowing it to defer US$310 million in debt-service payments due from May 1 to December 31, 2020.
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The debt restructuring negotiations with China have mostly remained secretive. Bradley Parks, executive director of AidData, a research lab at the College of William and Mary in Virginia, said China’s state-owned banks preferred to negotiate debt rescheduling agreements discreetly and bilaterally.
He said China was reluctant to publicly disclose the terms of its debt rescheduling deals because it was concerned that doing so could set off a wave of new rescheduling requests from other borrowers.
As an example, Parks outlined a recent case in which a group of IMF officials had a meeting in Beijing with China Exim Bank to discuss a potential debt rescheduling deal with an African borrower.
According to Parks, China Exim Bank told the IMF that one of its biggest concerns was the borrower’s obligations to private oil traders. Unless these companies were willing to also reschedule their loans to the borrower, an easing of repayment terms by the bank would simply see the oil traders repaid first, he said.
