Fund manager says Mozambique cannot expect understanding from creditors

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On Friday 3 February, at the end of the period of grace on the US$59.8-million January repayment on public debt issued in April of last year, Mozambique officially fell into financial default. Mozambique cannot expect leniency or understanding from creditors after failing to make the repayment, a fund manager who has invested in Mozambican debt says.

“Our view is of course negative, and with the non-payment of the January coupon,

the country has shown its unwillingness and should not expect any understanding or mercy from the holders of public debt securities”, a fund manager at Landesbank Berlin Investments told financial information agency Bloomberg.

Mozambique thus becomes the first country on the continent to fail to make a debt repayment since the Ivory Coast was unable to honor its financial commitments in 2011. The failure to pay was confirmed by several analysts and holders of debt securities to the Bloomberg financial information agency, and comes as the natural consequence of the announcement by the Mozambican government itself, two days before the deadline, that it would not pay the almost US$60-million that it owed to the holders of the approximately US$727-million in sovereign bonds that Mozambique issued in April last year.

The Mozambican Ministry of Finance confirmed on 16 January that it would not pay this month’s installment of US$59.8million for sovereign debt maturing in 2023, thereby entering into default.

“The Ministry of Economy and Finance of the Republic of Mozambique wants to inform the holders of the US$726.5-million maturing in 2023 issued by the Republic that the payment of interest on the notes, worth US$59.8-million, which is due on 18 January, will not be paid by the Republic”, the statement read.

In the document, Mozambique recalled that it had warned of lack of liquidity during this year last October and stressed that it views lenders as “important long-term partners whose support for the necessary resolution of the debt process will be critical to the future success of the country”. Partial financial default:

Following this announcement, Standard & Poor’s cut the country’s rating to ‘SD/D’, that is, partial financial default, and found that non-payment was a government strategy to force debt holders to negotiate a debt restructuring, which they have so far rejected.

Fitch maintained the country’s current rating but warned that Mozambique’s failure to pay the January installment would “increase the uncertainty” over the restructuring of sovereign debt issued in April last year.

Moody’s, for its part, also considered the non-payment a default, but did not lower its rating, since it considers its Caa3 assessment already implies an assumption of potential losses to lenders of 20% to 35%, possibly rising to a historical sovereign default average of almost 50%.

Source: Deutsche Welle

Mozambique may now have to pay the full US$727-million of sovereign debt – Blitzer

The main adviser to the group of investors to whom Mozambique failed to make a January repayment instalment warned on Friday 3 February of the legal consequences of the default, saying it may include the obligation to pay the full amount in advance.

“Mozambique is now permanently on the record again for failing to repay debt”, Charles Blitzer told financial news agency Bloomberg, noting that: “under the terms and conditions of the bonds, there are remedies for debenture holders, and the

Committee reserves the right to pursue all such options”.

According to information sourced from market analysts by Lusa, the conditions for the issuance of sovereign debt allow changes under certain conditions to the initial contract, if they are subscribed to by more than 75% of the debt holders and also contain an ‘acceleration clause’.

This clause stipulates, in general terms, that debt holders may demand full payment of the amount invested, that is, US$727-million, if the issuer fails to meet financial obligations.

Source: Lusa

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