(June 25): China called for global measures to curb what it described as “malicious litigation” by bondholders in debt relief cases, saying such action is needed to protect a Group of 20 (G20) restructuring mechanism for poor countries struggling to repay their loans.
The statement by People’s Bank of China deputy governor Xuan Changneng, who did not identify any specific examples, is the latest sign of tension between the world’s biggest bilateral creditor and commercial lenders when it comes to negotiating debt restructuring for nations from Ethiopia to Zambia.
In Ethiopia’s case, bondholders started the process of suing the government over US$1 billion ($1.3 billion) in defaulted notes after failing to reach a repayment deal acceptable to the investor group and the bilateral creditors that China co-leads. That threatens to unravel a restructuring deal the Horn of Africa nation struck with official creditors under the G20’s Common Framework guidelines for negotiating debt relief.
“The international community needs to consider putting in place mechanisms to strictly enforce the comparability of treatment principle,” Xuan wrote in the Paris Club’s annual report published this week. “Coordinated efforts are also needed on legal and technical fronts to curb malicious litigation by bond investors, thereby safeguarding the foundation and credibility of the Common Framework.”
The advisers to Ethiopia’s ad hoc committee of bondholders declined to comment.
The deputy governor also called for greater clarity on which lenders qualify as preferred creditors, meaning they are exempted from taking losses in debt restructurings.
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Zambia and Ghana were among the first to default after the pandemic and use the G20’s debt relief mechanism. Both faced hurdles when lenders including the African Export-Import Bank and the Trade and Development Bank said their claims should be excluded from the workouts.
“The lack of clear rules on which institutions qualify for the preferred creditor status not only slowed down the pace of restructuring, but also raised concerns over fair burden sharing,” Xuan said. “For those institutions with de facto PCS, a framework is needed to monitor their provision of grants and concessional lending.”
While China is not a member of the Paris Club of mostly rich-nation creditors, the country has played a central role in the restructuring cases of Ghana, Zambia and Ethiopia in recent years, leading each of the official creditor committees together with France.
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