Mozambique: Out-of-court settlement cuts debt exposure from $1.4B to $220M – Watch

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Mozambique: Out-of-court settlement cuts debt exposure from $1.4B to $220M – Watch

9:15 CAT | 02 Jul 2024

Image: Miramar

Mozambique’s government announced on Monday an out-of-court settlement with three banks, including Portugal’s BCP, in the dispute in London over hidden debts. The settlement reduces “state exposure” from $1.4 billion to $220 million.

“The out-of-court settlement reduces the state’s exposure to $220 million (€205 million), i.e. a cut of 84% of the banks’ total claim (and 66% of the capital),” said the Minister of Economy and Finance, Max Tonela, at a press conference yesterday.

According to the minister, “the state’s potential liability in this case, including both capital and interest, would be around $1.4 billion (€1.3 billion), with interest continuing to accrue, as well as estimated costs of around £50 million [around €59 million], in the event of losing the case.”

The hidden debts scandal dates back to 2013 and 2014, when the then finance minister, Manuel Chang, now in detention in the United States, approved state guarantees on loans from Proinducus, Ematum and MAM to Credit Suisse and VTB banks without parliamentary approval.

Discovered in 2016, the debts were estimated at around $2.7 billion (around 2.55 billion euros), according to figures presented by the Mozambican Public Prosecutor’s Office.

The agreement announced today was reached with Banco Comercial Português (BCP), which only participated in the loan to the company MAM, VTB Capital Plc (intervened) and the former VTB Bank Europe, in a dispute that has been running in the London Court since February 2019.

“The out-of-court settlement offers clear advantages for the state, compared to an uncertain court decision with possible unsustainable consequences for the country in the short and medium term. It also avoids endless appeals and extremely high costs, considering the country’s current economic and fiscal challenges,” said Max Tonela.

The minister added that the agreement’s conclusion is “affordable within the limits approved in the Social Economic Plan Law and the 2024 State Budget.”

The government also pointed out that the agreement does not affect the actions to hold those involved in the hidden debt scandal accountable.

This is the second out-of-court settlement in the case.

Mozambique previously announced that it had paid $130 million (€119.1 million) to financial institutions as part of an out-of-court settlement with Credit Suisse to end a dispute in the London Commercial Court over the “hidden debts” case.

Made public on 1 October, the day before the trial began in the British courts, the main signatories to the agreement were the Mozambican government and the UBS group, owner of the Credit Suisse bank, the main financier of the state company Proindicus to buy ships and maritime surveillance equipment in 2013.

“Mozambique is now unconditionally open to the market and its government is committed to strengthening the governance agenda and structural fiscal reforms on a healthy basis and to giving its full attention to implementing the right measures to support the country’s economy,” concluded Max Tonela.

The ongoing trial is the culmination of almost four years of litigation in the British courts, to which the African country appealed, alleging corruption, conspiracy to defraud by unlawful means, and dishonest assistance in canceling debts and claiming financial compensation worth millions of dollars.

Mozambique is demanding $3.1 billion (€2.8 billion) in damages, compensation and indemnity from the shipping group Privinvest and its owner, Iskandar Safa, whom it accuses of paying bribes to public officials, including former finance minister Manuel Chang, who signed the sovereign guarantees on the loans.