‘Hidden Debts’: Mozambique government demands compensation from Credit Suisse and VTB banks

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‘Hidden Debts’: Mozambique government demands compensation from Credit Suisse and VTB banks

3:13 CAT | 03 Sep 2019

in file CoM

The Government of Mozambique is demanding that Credit Suisse and VTB, which arranged loans to two state-owned companies, not be repaid the loans, but rather pay compensation for the crisis they helped create.

“Mozambique is claiming compensation and/or a contribution for any liability it may have towards holders of sovereign debt securities and the total cost of debt service and associated costs related to the new securities to be issued under the restructuring process, together with the macroeconomic losses which result from the irregularities of the defendants,” the government says.

The announcement appears in a legal document called the ‘Consensus Solicitation Memorandum’, which was sent to the owners of the public debt securities at the end of August, and to which Lusa had access, in which it is disclosed for the first time that the lawsuit filed in the London courts includes a claim for compensation for the effects of the loans on the country’s economy.

The disclosure comes just a few days before the deadline for investors in the US$726.5 million sovereign bond to decide whether or not to accept the debt restructuring proposal, which essentially defers the start of payments in exchange for a higher interest rate.

In February, the Mozambican Attorney General’s Office filed a lawsuit against Credit Suisse International, Credit Suisse AG, former Credit Suisse employees and agents who facilitated loans to Proindicus, Mozambique Asset Management and several other entities in the Privinvest Group.

In July, another lawsuit was specifically filed against Privinvest CEO Iskandar Safa seeking, among other things, “compensation and reparation for losses suffered by the country under guarantees allegedly issued by former Finance Minister [Manuel Chang],” as the document, which had not yet been released, reads.

“Mozambique’s argument is that the transactions involving Proindicus, MAM and Ematum, and the alleged nominal guarantees of each company, were part of a fraudulent scheme designed to obtain and hold Mozambique liable for approximately US$2.2 billion, and that Mozambique was misled in the exchange of [Ematum] bonds for sovereign debt in 2016, ” the memorandum reads, confirming the government’s official claim that these loans “do not constitute a valid or legal obligation attributable to Mozambique.”

Underlying this argument is the history of the whole case, which the government’s lawyers summarise as saying that the disclosure of the fraudulent loans has caused the International Monetary Fund and international donors to cut financial support, which, together with the depreciation of the metical and the fall in commodity prices has cut GDP growth in half since 2015.

“The immediate consequence of these hidden loans and state guarantees included the suspension of IMF and donor disbursements, negatively affecting the government’s financial position and reducing the financial resources available for the government to address economic and development challenges as well as the impact of natural disasters,” the memo reads.

Source: Lusa