Mozambique’s Rating Cut by S&P to CC on Tuna-Bond Restructuring

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Mozambique’s Rating Cut by S&P to CC on Tuna-Bond Restructuring

7:35 CAT | 16 Mar 2016

In File Club of Mozambique / A view of Maputo, capital of Mozambique

Standard & Poor’s cut Mozambique’s credit rating by four steps and warned that a proposed restructuring of about US$700 million of bonds issued by a state-owned tuna-fishing company could be “tantamount to default.”

The rating was lowered to CC, 10 levels below investment grade, from B-, S&P said in an e-mailed statement on Tuesday.

“We could lower the foreign-currency ratings on Mozambique to ‘selective default’ if we consider the investors will receive less value than the promise of the original securities, or if we believe the offer is distressed, rather than purely opportunistic,” S&P said. “Once the exchange is completed successfully, we would expect to revise the rating.”

Mozambique said on March 9 it wanted to switch holders of $697 million of state-guaranteed notes issued by Empresa Mocambicana de Atum SA, or Ematum, into a new interest-only bond issued by the government maturing in 2023. The “tuna bonds” are amortizing and have a final maturity of September 2020. Details of the exchange, including the coupon on the new bond, are expected to be announced on March 17.
Cash Crunch

Mozambique, one of the world’s poorest countries, wants to reduce its annual debt-servicing costs as it faces a cash crunch from the slump in commodity prices. Its currency, the metical, has plunged 36 percent against the dollar since the start of 2015.

Yields on the bonds rose 40 basis points to 16.75 percent by 5:21 p.m. in London on Tuesday. They were little changed after S&P’s announcement. The yield has dropped from a record of 22.47 percent on March 1.

S&P’s concerns echo that of Fitch Ratings Ltd., which said on March 11 that the restructuring offer “could constitute a distressed debt exchange under the agency’s criteria, which we would consider a default event.”

Fitch rates Mozambique at B, five steps below investment grade and the same level as Moody’s Investors Service.

Mozambique’s Minister of Economy and Finance Adriano Maleiane led a delegation to London and New York on Monday and Tuesday to convince bondholders to back the exchange. Holders of the Ematum securities include AllianceBernstein LP, which has almost $30 billion invested in emerging markets, Danske Bank A/S, Franklin Templeton Investments, Goldman Sachs Group Inc., and Aberdeen Asset Management Plc, according to data compiled by Bloomberg.

Credit Suisse Group AG and VTB Capital Plc are arranging the exchange offer. The bond was originally a loan from the two banks for the purchase of tuna-fishing boats. It was then packaged into so-called loan participation notes and sold to global bond investors.

Source: Bloomberg