Mozambique: Logistics corridors to transition towards specialised management - report
The credit ratings agency Moody’s on Thursday warned that Mozambique’s “ongoing default” will result in “sizeable losses for private creditors”.
The creditors in question are those who lent money in 2013 and 2014 to the three security-related companies Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management). These include the banks Credit Suisse and VTB of Russia.
In the case of Ematum, the loan took the form of a bond issue on the European markets. But in April 2016, the Ematum bonds were replaced by sovereign government bonds with a longer repayment time, but at a higher interest rate.
Also Read: Mozambique’s rating captures risk of sizeable losses for private creditors from default – Moody’s
However, since then the government has been quite unable to make any payments to the bondholders, or to meet the Proindicus and MAM repayment schedule. The Ministry of Economy and Finance explained the government’s precarious financial situation to the creditors at a meeting in London last October, and stressed that these debts must be restructured since there was no possibility, in the short term, of the government repaying any of them.
In its latest report on Mozambique, Moody’s notes that the government “has not made payments on several debt instruments since the beginning of 2017, pending a restructuring. The government’s track record of defaults indicates its low willingness to prioritise debt payments.”
Moody’s now gives Mozambique the very low credit rating of Caa3 and describes the outlook as “negative”. It adds that “the government may seek to impose larger losses to private creditors, which would increase the likelihood of the IMF being willing to provide financial support”.
Also Read: Impasse with Mozambican creditors delays megaprojects, increases their costs – BMI
Moody’s assesses the government’s fiscal strength as “Very Low (-)”. The report says this reflects “high and rising government debt levels and high financial exposure to currency weakness. High government debt — which stood at 102% of GDP in 2016 – and a lack of access to financing, especially external, to cover fiscal deficits and debt payments, are credit constraints”.
The picture is somewhat better when it comes to Mozambique’s economic strength which Moody’s classifies as “Low (+)”, thanks to the small size of the economy, limited diversification, poor infrastructure, and low per capita incomes.
But the report adds that Mozambique “has good long-term growth prospects. Unlocking its liquefied natural gas potential would be a game changer for Mozambique’s export performance, its overall economy, as well as for government revenues”.
Mozambique’s rating was downgraded to Caa3 in early July precisely because of the government’s inability to meet the Ematum, Proindicus and MAM repayment schedules.
Also Read: UPDATE – Mozambique government not bound by loan guarantees, say creditors
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