JP Morgan Chase & Co. says that the African nation is poised to miss payment on a US$60-million coupon next week, but a former IMF official who’s advising bondholders insists the government has the money.
“It’s in the interest of Mozambique, as well as the bondholders, for the government to pay the coupon”, Charles Blitzer said in an e-mailed response to questions. “I can’t see any good consequences if it doesn’t. The market has overreacted in spades”.
The country’s US$727-million of bonds sank to a record after JP Morgan analysts said the government’s rhetoric implies it’s “highly unlikely” to make the payment on 18 January.
Mired in a financial crisis after commodity revenue plummeted and the IMF cut aid,
Mozambique said in October it would seek to restructure the Eurobond as well as US$1.4-billion of government guaranteed loans to two State companies. Lazard Frères & Co., which represents Mozambique along with law firm White & Case LLP, said the government would have no money left over for debt payments in 2017, including those on the Eurobond.
That sparked a stand-off with bondholders, who formed a creditor committee to argue their case for preferential treatment over other creditors on the grounds that their state guarantees may be illegal.
“The situation in Mozambique has improved since October”, said Blitzer, who’s advising creditors including Franklin Templeton and AllianceBernstein LP. “In recent months capacity to pay has improved as both the exchange rate and reserves have stabilized and begun to move up”.
The January 2023 bond was little changed at 50.67 cents on the dollar as of 11:54hrs in London, with the yield at 27.88%. While the government hoped to finalise a restructuring by 18 January, it still hasn’t started formal discussions with the bondholders. There’s a 15-day grace period to settle the coupon payment, according to the prospectus.
“There’s nothing on the record to indicate they’ve made a decision to not pay this coupon”, said Blitzer. “There was nothing like that said in the restructuring presentation. The creditor committee remains open to discussions of its views and analysis of various issues, but negotiations could begin only after the various preconditions are in place”.
Mozambique “bound to fail” to make debt installment payments
The Economic Studies Office of BPI Bank says that Mozambique is “bound to fail” to make the US$727-million 2016 public debt repayment due this month (January 2017).
“It is unlikely that IMF (International Monetary Fund) financial aid will arrive in time for the January payment installment, even if the findings of the audit of the three companies ordered by the State are known. As a result, the government is bound to miss the payment”, the BPI analyst following Mozambican economic affairs told Lusa.
The interest rate demanded by investors to transact Mozambique public debt worsened suddenly after JP Morgan also predicted that the country would fail to make repayment installments this month.
The interest rate charged by investors to transact Mozambique public debt maturing before 13:00hrs Lisbon time rose to 24.09%, compared to the 23.19% required little more than a week ago.
According to the Bloomberg financial information agency, which monitors the interest demanded by investors trading debt securities in the secondary market, the value of the securities fell 3.2% to 57.9 cents on the dollar just before 13:00hrs Lisbon time.
Insurance broker AON raises Mozambique’s sovereign risk
Mozambique was the only country in subSaharan Africa to see its Political Risk, Default Risk and External Transfers increase to “High”, according to an analysis by risk insurance brokerage firm AON.
Analysts from the brokerage, which every year draws up a map of the political risk of almost all countries, wrote that due to the deterioration of the general credit rating in the last quarter of 2016, Mozambique rose from a rating of “Medium-High” to “High”.
In the quarterly update, analysts said that: “Mozambique is going through a debt crisis, exacerbated by the discovery of government fraud and the subsequent suspension of financing and international support, including from the IMF aid programed”.
Recalling the debts of public companies that were hidden from the country’s officials, the AON analysts anticipate difficulties in the short and medium-term, not only in payment of debts but also in the business environment in Mozambique.
“The ongoing international audit should reveal that current debt levels are unsustainable, which means that more debt restructuring will be necessary”, the report said, adding “this could undermine the business environment for international entrepreneurs”.
The Political Risk map examines nearly 160 countries and territories through 168 indicators.
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