Mozambique to restructure $850m ‘guns-and-tuna bond’

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International investors have been asked to accept a 20% haircut and longer tenor on Mozambique’s EMATUM loan, which funded spending on a military now facing allegations of human rights abuses against the civilian population

  •         Mozambique government to ask lenders to accept 80% of value of EMATUM bonds
  •         Loan restructure could be seen as sovereign default by credit rating agencies
  •         If accepted, Mozambique will pay around $80 million per year and extend the tenor by three years to 2023
  •        Most of $850 million bond issue used to fund Mozambique’s military which is now facing an investigation over alleged human rights abuses

The Mozambique government is set to make a new offer to international investors duped into lending $500 million to the country’s defence budget and which it is unable to pay back under the terms initially agreed.

According to a report published last night by financial news agency Bloomberg, Mozambique will offer investors 80% of the value of the outstanding loan, which has a sovereign guarantee, and ask them to wait an extra three years until it is finally paid off. If investors accept the deal, Mozambique’s repayments will come down from more than $200 million per year to around $80 million.

However, it could be counted as a sovereign default by the major credit ratings agencies. Standard & Poor’s said in February that if a restructuring of the loan included “a reduction in principal or an extension of maturity dates”, as in the case of this offer, “we could view the transaction as tantamount to default.”

The original deal was done in 2013 when Credit Suisse, BNP Paribas, and VTB Capital raised $850 million for Mozambique on international bond markets under the pretext of funding a tuna fishing company called EMATUM. The government later admitted that $500 million of the money was in fact for the country’s defence budget.

The bond issue attracted investors with its 5-year amortisation period, 6.3% yield, and government guarantee. However, the government  is struggling to keep up repayments on the loan. The first principal repayment in September last year, after a two-year grace period, caused a foreign exchange crisis in the country. The Mozambican currency almost halved in value against the dollar before the IMF stepped in with an emergency credit facility in December.

The next repayment, of over $100 million, is due tomorrow, 11 March 2016. The government said it will meet that repayment, according to Bloomberg’s report. It said the government will reveal the full terms of its new offer to investors on 17 March, which include extending the end of the loan period from 2020 to 2023. After tomorrow’s payment, the remaining value of the loan will be roughly $697 million, the report said.

Soldiers ‘summarily execute villagers’

Mozambique’s security and defence forces are meanwhile under  scrutiny for alleged human rights abuses carried out over the last two years. Some 11,000 Mozambicans are currently seeking asylum in neighbouring Malawi, alleging persecution, torture and killing by government forces in the north-western province of Tete. Research published yesterday shows evidence of the police and military attacking civilians across central Mozambique, and that the military last year tried to kill the elected leader of the opposition, Afonso Dhlakama.

On Wednesday, New York-based Human Rights Watch (HRW) gave a tentative welcome to a statement by Mozambique’s government saying it is looking into allegations of human rights abuses. Zenaida Machado, Mozambique researcher at HRW, said: “Any such investigations should be credible and transparent and ensure that those responsible for the serious human rights abuses are held to account, whether they are soldiers, police or members of [opposition movement]Renamo.”

Asylum seekers at the Kapise refugee camp in Malawi told HRW researchers in February that they fled army abuses and fear returning home. They described seeing soldiers in uniform, and some driving army vehicles summarily execute their husbands and other villagers, or tie them up and take them away to undisclosed locations. In many cases, soldiers torched homes, granaries, and cornfields, accusing local residents of feeding and supporting opposition militias.

source: zitamar

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