Mozambique’s plan to cut a deal with holders of a controversial US$726-million “tuna bond” has been branded “unrealistic” by investors, who say the government’s shock declaration of debt distress is likely to result in complex negotiations. Prices for the impoverished African country’s sole dollar-denominated government security dropped to 60 cents in the dollar on Wednesday, sending the yield to a record 23%, as the Finance Ministry warned the bond had to be renegotiated if it was to secure crucial funding from the IMF.
Mozambique’s multi-million dollar debt scandal is a story of hidden loans, disgruntled donors and global money that has highlighted the cracks in sub-Saharan Africa’s recent credit boom.
After securing a debt restructuring earlier in March, the government this week announced plans for a new “debtresolution” with private creditors – who include large asset managers such as Allianz and BlackRock – as the country’s economic crisis deepens. It hopes to agree a deal by December before striking a new agreement with the IMF ahead of an interest payment due in mid-January.
“This sort of tight deadline is unrealistic”, one bondholder said. “They envisage a clean deal and its highly unlikely they will get it”.
Creditors have expressed anger at what they call the government’s economic mismanagement and lack of transparency, with one bondholder declaring they had no intention of accepting a deal that imposed losses on private investors and not the multilateral and bilateral creditors who hold 80% of the country’s debt. Mozambique’s decision to borrow on international markets began with a US$850-million loan used to establish Ematum, a state-backed tuna fishing company, in 2013.
The deal turned sour amid revelations that the majority of funds had been spent on
security equipment and concerns about how the debt would be repaid, leading the government to seek an agreement with creditors to restructure the bond this year – resulting in the new US$726-million security.
Shortly after Mozambique restructured its bonds, it emerged that the country had outstanding debts of up to US$1.4-billion which had not been disclosed, leading the IMF and donors to suspend aid critical to the cash-strapped government. The IMF will only resume its programme once the country has completed an independent, international audit.
In a phone call to investors on Tuesday afternoon, the government said the country had been hurt on numerous fronts, including lower prices for coal and aluminium exports, a poor harvest and the sharp currency depreciation that has increased the cost of servicing debt in dollars.
Mozambique calculates that its debt burden is now equal to 130% of GDP and says that it has no capacity to meet payments due on debt next year.
The country has pinned its economic future hopes on vast gasfields, however these are not expected to generate revenue until 2021. Marco Ruijer, emerging market debt investor at Dutch investment house NN Investment Partners, reduced his position in the country’s bond earlier this month and sold the rest during the Finance Ministry’s presentation on Tuesday once it was announced that Lazard, which advised both Greece and Ukraine in recent creditor negotiations, had been hired by the government. Ruijer said the government could use its positive long-term story to strike a deal with creditors if it offered to swap the bond for GDP-linked warrants that would freeze immediate repayments but pay out a slice of Mozambique’s future economic revenue. This was a path taken by Ukraine when it restructured its debt last year.
But, he added, this type of deal would likely involve complex negotiations. “These things are difficult to value”, he said. “It depends on when Mozambique and investors expect the economy to recover”.
When Mozambique revealed its hidden loans, investors said they were seeking legal opinion over the question of whether Credit Suisse and Russian bank VTB had provided them with sufficient details about outstanding government-guaranteed debt during negotiations to swap Ematum bonds for the new government bond. However, this was not pursued, according to one bondholder.
UK and Swiss authorities have also launched early-stage inquiries into alleged irregularities around the loans. Credit Suisse declined to comment. VTB said that it was participating in meetings with the Ministry of Economy and Finance and their advisers.
Source: The Financial Times
IMF freezes Mozambique loans while country’s debt Is in distress
The IMF will withhold any further funding to Mozambique, which told creditors this week that it wants to restructure its commercial loans, while the country is still classified as debt-distressed, a spokesperson for the lender said.
“In line with Fund policies, we cannot disburse funds in a situation where we think the debt is not sustainable”, Gerry Rice told reporters in Washington on Thursday 27 October, according to a transcript of the briefing posted on its website. “As with any country, to be able to disburse we need to know that the debt is sustainable”.
Mozambique’s Eurobonds have fallen by as much as 24 cents on the dollar to 57.18 cents in the dollar since Finance Minister Adriano Maleiane told investors that the country was in “debt distress” and wouldn’t be able to make an interest payment on the debt due in January.
The IMF halted aid disbursement after the government admitted to approximately US$1.4-billion in undisclosed loans in April, prompting other donors to stop budget support too.
Government plans on reaching a deal with investors to restructure its external debt by the end of the year, to allow it to reach agreement with the IMF on a new programme early next year, according to the Finance Ministry. This timing is “terribly ambitious”, Stuart Culverhouse, an economist at Exotix Partners in London, said in a note to clients Friday.
Source: Bloomberg Quint
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