Exclusive: Mozambique to
treat bondholders, commercial lenders same in debt
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[November 14, 2016]
By Karin Strohecker
(Reuters) - Mozambique wants to strike a debt restructuring deal before
the end of this year and aims to treat bondholders on par with its other
commercial creditors, the country's legal advisor told Reuters.
One of the world's poorest countries, the southern African nation has
seen its currency collapse and its dollar-denominated bonds lose a third
in value since April when the International Monetary Fund (IMF) found
over $2 billion in undisclosed debt which had not been approved by
parliament, and pulled its funding.
The country told creditors at the end of last month its debt position
was unsustainable and it had to renegotiate repayment terms if a new IMF
loan deal were to be agreed.
"There is virtually no capacity for Mozambique to pay anything to
commercial creditors in coming years," said Ian Clark, a partner at law
firm White & Case which advises Mozambique on its sovereign debt
"It is absolutely inevitable that there will be a restructuring of the
commercial debt, including the direct debt and the guaranteed debt,"
Clark told Reuters.
The commercial debt at the center of restructuring efforts are a
Eurobond and nearly $1 billion of state-guaranteed loans.
The bond was launched by state fishing company EMATUM in 2013 with a
complex structure to finance a fishing fleet, but the project was a
fiasco with boats now rusting in Maputo harbor. In April, bondholders
agreed to swap the initial issue for a sovereign bond with $727 million
outstanding in a deal widely seen as investor friendly.
Eurobond holders have formed a creditors' group, but insisted that as
they have already accepted one debt swap, other commercial and bilateral
lenders should be first to take the additional pain Mozambique plans to
Mozambique's commercial debt accounts for 17 percent of its external
public and government-guaranteed debt stock, while the rest consists
almost equally of obligations to bilateral and multi-lateral lenders,
according to a government presentation in late-October.
Total external debt was expected to exceed 100 percent of gross domestic
product in 2017, the presentation showed.
Clark noted that the April Eurobond swap, which extended maturity and
increased the coupon, was positive or at least neutral for investors.
The creditors have labeled the deal a "restructuring" while the
government deems it a "reprofiling".
"Bondholders have not gone through any sort of distressed restructuring
at this stage so they are in the same position as the holders of the
guaranteed loans in that respect, and in our opinion inter-creditor
equity requires that they will all be treated on an equivalent
pari-passu basis in this process."
Bondholders are due another coupon payment in January.
While Eurobond creditors had specified that the group was open only to
those holding the issue, Mozambique would like to see all commercial
creditors club together, Clark said.
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A fisherman cleans his boat beneath Maputo's skyline, in this
picture taken August 15, 2015. REUTERS/Grant Lee Neuenburg/File
HAIRCUT "NOT OFF THE TABLE"
The commercial loans were made to state firm Mozambique Asset Management
(MAM) to build shipyards, and to Proindicus, a firm owned by the
Ministries of Interior and Defence and the State Security and
Intelligence Service, to pay for maritime security projects.
They were arranged by Switzerland's Credit Suisse and Russia's VTB,
which also participated in arranging the eurobonds.
Clark said Mozambique was in contact with both banks over the loans. No
agreement has been reached, he said, but he added that both banks,
acting as facilitators, were "willing to engage with us and discuss
While the exact shape of a future restructuring was yet to be
determined, a repayment of principal in the next five years was "out of
the question" and a very substantial interest relief or deferral was
needed, Clark said.
"Whether we are going to need anything more than significant maturity
extensions and reductions in coupons, or capitalization of interest and
go into nominal haircuts and the like, we don't know that for sure," he
said, adding that nothing was "off the table".
Yet time is running out. Eurobond investors insist they want to wait for
the IMF's return to Mozambique and the publication of an international
audit into state firms' loans before starting negotiations.
"If you wait to get the IMF back in the country, if you wait to get the
financial situation stabilized, countries can end up going into a
downward spiral that can become very difficult to control," said Clark.
"We would like to reach an agreement with them by the end of the year
and implement that in January - that is extremely aggressive, I fully
(Reporting by Karin Strohecker; editing by Peter Graff)
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