“The government deceived us” by not disclosing the debts with state guarantee contracted by various public companies in 2012 and 2014, said the Vice-President of Russia’s VTB bank about the loan to Mozambique.
In an interview with Bloomberg, Yuri Soloviev, head of VTB Capital and first deputy chief executive officer of VTB Group, said the institution had been deceived because the state-guaranteed debts of several public companies were not disclosed to investors and the IMF by the government of Mozambique.
Soloviev said that VTB was no longer the holder of the debt, but that it had not abandoned investors “since we are responsible, as agents of the loans and in the issuance of foreign-currency debt”.
VTB and Credit Suisse both helped restructure the Mozambican debt, but the operation was kept undisclosed by the Mozambique government until April 2016, when the Minister of Economy and Finance acknowledged the debt during the IMF Spring Meetings in Washington.
The IMF, the World Bank and several countries subsequently suspended the financing of projects in Mozambique, giving rise to the current economic and financial crisis.
VTB says it doesn’t know whether Mozambique will be able to pay January installment
On Thursday 13 October, the VicePresidemozant of Russian bank VTB said that he does not know whether Mozambique will be able to pay a US$38-million January debt repayment instalment. “The situation with this debt is very hard. We do not know if they will be able to pay the foreign currency coupon debt in January”, Yuri Soloviev told financial news agency Bloomberg in an interview.
Referring to public debt amounting to US$727-million that the government of Mozambique took on at the beginning of this year, the deputy CEO of Russia’s second largest bank said that: “We are being patient and trying to resolve the situation”.
According to an analyst at Exotix Partners quoted by Bloomberg, Mozambique will have to pay US$38-million on 18 January, according to the restructuring agreed in May which increased the annual interest but postponed by three years to 2023 the payment of the entire loan.
The interest demanded by investors to transact these debt securities has now increased seven basis points to 14.9%, a decline from a high of 19.18% on 27 June when the IMF warned that the level of public risk was becoming unsustainable, and its lowest since 14 September.
VTB was one of the banks which, together with Credit Suisse, organized debt restructuring, and is also one of the banks that raised an undisclosed loan for MAM, a public company that failed in May to repay interest of US$178-million on a total debt of US$535-million.
The exchange of Ematum bonds for sovereign debt securities was approved in April, and provided for an advance purchase premium of 5%, an increase in the annual interest rate from 6.3% to 10.5% and an extension of maturity from 2020 to 2023.
The proposal brought two major benefits to Mozambique. Firstly, only interest will be paid until 2023, relieving pressure on public finances and on the growth of public debt (which this year is expected to approach 100% of GDP). Secondly, the agreement defers to 2023 the payment of
the entire loan. The delay of three years is probably related to the expectation that by then Mozambique will already be able to capitalize on tax revenues from the huge natural gas reserves that have been discovered in recent years, and which put the country among the richest in this natural resource in the world.
The so-called ‘hidden debt’ scandal also involves the Ematum tuna-fishing company, which is owned by various public bodies including the Mozambican secret intelligence and got into debt with the government as guarantor, outside of the state accounts and without the knowledge of external financiers.
Initially regarded as a private business with hundreds of millions of dollars of debt outstanding on the purchase of a fishing fleet in France, it has recently been recognized that Ematum also served for the purchase of military equipment and, under pressure from donor countries, the business was covered by last year’s amending budget.
The Ematum accounts, including state guaranteed debt worth US$850-million, have been repeatedly presented by international institutions as an example of the lack of transparency in Mozambique’s financial dealings.
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