* Zambia at risk of defaulting next month

* The government caught between bondholders and China (adds a comment from creditors, a reaction on bonds)

LUSAKA, October 28 (Reuters) – Zambia has reached an agreement to defer debt repayments that were due this month on a loan from the Development Bank of China (CDB), the Zambian government said, without giving the amount of the loan or the debt repayments that were due.

Zambia owed the CBD about $ 391 million at the end of last year – about a tenth of the $ 3 billion it owes Chinese entities – according to the finance ministry. It was not clear whether the loan in question covered all of this debt or a fraction of it.

China holds about a quarter of Zambia’s external debt.

“Under our agreement with the CBD, interest and principal due on October 25, 2020 will be deferred,” the government said in a statement. “The payment of deferred interest is now payable on April 25, 2021 and the deferred principal is rescheduled over the life of the facility. “

Zambia, one of the world’s largest copper producers, has been plunged into a debt crisis as the COVID-19 pandemic has hurt its economy and revealed that its public borrowing is unsustainable.

Zambia’s bonds reacted little to the news. They were already showing signs of strain before COVID hit this year, but are now trading at just 40% of face value.

The government missed a $ 42.5 million coupon payment on one of its Eurobonds that was due on October 14, but has a 30-day grace period before it defaults.

He has asked Eurobond holders to defer payment of interest until April 2021, but they have so far rejected the request.

One of the sticking points has been whether other key lenders such as China would agree to reschedule repayments as well.

“This is a good step in the right direction, but they still need to do more to appease the group of creditors,” said one of the members of the Zambia External Bondholders Committee, Kevin Daly of Aberdeen Standard. Investments in London.

“It’s still piecemeal and what you need is something complete. “

He also said it was not clear whether the announced deal included a postponement of the payment of arrears which would have become an obstacle for some Chinese entities participating in Zambia’s debt relief.

Zambia’s external debt stands at nearly $ 12 billion, including $ 3 billion in outstanding Eurobonds, $ 3.5 billion in bilateral debt, $ 2.9 billion in other debt trade and $ 2.1 billion owed to multilateral institutions.