Assurances from Zambia’s finance ministry that the southern African nation won’t default and has budgeted to meet interest payments have so far failed to ease fears among holders of the notes, which extended declines on Thursday to trade at less than half their face value. The government asked for a six-month suspension of coupon payments of as much as $120 million.

Zambia’s finance ministry and Lazard didn’t respond to messages and telephone calls seeking comment. Rafael Molina, managing partner at Newstate Partners LLP which is advising the bondholders, declined to comment.

Budget Details

The government will spend 4.7 billion kwacha ($230 million) on Eurobond payments in 2021, according to the so-called Yellow Book, which provides a more detailed version of the budget than Finance Minister Bwalya Ng’andu presented on Sept. 25. That accounts for nearly half of the total 10.3 billion kwacha set aside for external interest payments.

The government budgeted for Eurobond coupon payments for 2021 in case bondholders rejected its proposed payment standstill, Ng’andu told state television Sunday.

Still, given other fiscal pressures, Zambia would struggle to meet payments during the grace period it’s seeking, according to Irmgard Erasmus, an analyst at NKC African Economics in South Africa. Zambia’s $1 billion Eurobonds due 2024 fell a ninth straight day and were down 0.9% at 48.845 cents on the dollar by 4:57 p.m. in London.

“We believe that a distressed-debt exchange for Eurobond holders is inevitable, but considering the short time frame, Zambia has less than two months before being officially classified by rating agencies as being in default,” Erasmus wrote in a report. “In addition to the very short time period, complications may arise due to the absence of a collective action clause on two of the outstanding Eurobonds, which makes holdouts more likely.”

The copper-exporting nation ran up nearly $12 billion in external debt over the past decade, ignoring warnings from the International Monetary Fund over the past three years that it was at high risk of debt distress.

Zambia plans to ask holders of its three Eurobonds totaling $3 billion on Oct. 20 to agree formally to the six-month interest payment suspension, starting on Oct. 14. A coupon payment of $42.5 million is due on that date, though the country has no principal payments due until September 2022, when a $750 million note matures.