“Tuna” bond investors may sue Mozambique and banks – sources
Some holders of Mozambique’s restructured “tuna bond” have hired a law firm to explore suing the government and banks Credit Suisse and VTB after it was revealed the country owed US$1-billion more to creditors than it had disclosed, three sources familiar with the situation said.
Investors agreed this year to swap US$697-million still outstanding of a bond issued in 2013 by state tuna-fishing firm Ematum for a sovereign bond maturing in 2023. The deal was viewed at the time as creditor-friendly as it did not require bondholders to write down any of the bond principal and allowed them to exchange corporate risk for a sovereign bond, which is perceived as safer.
Transactions were managed by Credit Suisse and VTB. Both banks declined to comment about bondholders considering a legal case. Reuters was unable to independently confirm how far the decision to take legal action has advanced.
Soon after the swap deal, the IMF said it had uncovered US$1-billion of undisclosed borrowing that “significantly changed” its view of Mozambique’s finances and economic outlook. The additional borrowing appeared to represent loans taken out from Credit Suisse and VTB, the IMF said.An IMF source later said Mozambique had owned up to as much as US$1.35-billion of undeclared sovereign borrowing that could render its debt position unsustainable.
The hidden borrowing takes Mozambique’s foreign debt obligations to US$9.86-billion, or 80% of GDP, and credit rating agency Fitch said in April that a default was likely. Speaking to Reuters, bondholder sources said some of the bondholders had formed an informal group to consider a suit against the Mozambique government and the two banks.
“We have decided to take legal action after we realised how bad the numbers were after the IMF made them disclose a couple of months ago”, said one fund manager who requested anonymity. “Credit Suisse and VTB sold us the new issue, but it didn’t have full disclosure … So we have hired the legal firm now and it is moving along”, the source said, adding that the lawsuit would also target the government.
Reuters has not been able to identify the law firm and while two other fund managers said plans for a lawsuit by a creditor group were underway, they declined to give more details of participants or say which law firm had been hired. Neither Mozambique’s finance minister nor a spokesperson for the ministry responded to telephone calls from Reuters for a comment.
The IMF cancelled a planned trip to Mozambique when it revealed the additional US$1-billion of debt in April and said it thought the money had been spent on the southern African country’s defence sector. Swiss and UK financial watchdogs are looking into Credit Suisse’s and VTB’s involvement in Mozambique, sources told Reuters last month. Then, Credit Suisse declined comment while VTB said it had been open and transparent with the regulators on the Mozambique transaction.
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