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The Economist Intelligence Unit (EIU) believes that the most likely outcome of negotiations between creditors and the Mozambican government will be the amalgamation of all the securities in a single new financial instrument, with losses for all.
“The most likely outcome is that all three financial instruments [sovereign debt securities and loans to two state-backed public enterprises] will be packaged into a single debt security, with a significant ‘haircut’ on the total and payments be pushed into the middle of the next decade,” the experts of the economic analysis unit of the British magazine The Economist write.
In an analysis of the economic consequences of January’s default, EIU economists write that, even with the postponement of payments, “the total volume of sovereign debt still exceeds by far the limit used by the International Monetary Fund (IMF) on debt sustainability,” but argue that “the Fund would probably let this go if the short-term payment schedule seems manageable”.
The EIU analysis focuses on the consequences of the current impasse between the Mozambican government and public debt creditors, who accuse Mozambique of withholding the January provision of nearly US$60 million to force them back to the negotiating table.
Mozambique’s decision came as a result of the rejection of the proposed restructuring at the end of last year by holders of US$727.5 million in sovereign debt, which resulted from the conversion of corporate bonds of the Mozambican Tuna Company (Ematum).
“Negotiations are going to be fragile and the prospects for a quick agreement are slim, but we still hope that an agreement will eventually be reached because a total default – the only alternative to a restructuring – is not in the interest of any of the parties, including the government, as it would affect the ability of gas investors to find financing for their projects,” adds the commentary sent to investors to which Lusa has access.
The EIU also points to an improbable but possible alternative, which would “declare the loans illegal, withdraw sovereign guarantees and force creditors to seek redress in the courts”.
This scenario would shift the focus of the discussion to the behaviour of Credit Suisse and Russian VTB, the banks that traded the US$622 million loans to Proindicus and US$585 million to Mozambique Asset Management.
The strongest proponents of this solution, EIU economists say, “are the donors who have seen their help go to the commercial debt that probably financed corruption”, but to make this statement may imply making those in charge of Mozambique’s secret services at the time [the current President of the Republic, at the time of the loans Minister of Defence] personally responsible, probably politically unpalatable to the Government”.Source: Lusa