Ematum bondholders likely to accept Mozambique’s government offer

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Ematum bondholders likely to accept Mozambique’s government offer

8:39 CAT | 22 Mar 2016

Some of the main holders of the bonds issued in 2013 by the Mozambique Tuna Company (Ematum), and guaranteed by the Mozambican government, have expressed support for the government’s offer to restructure the bond, so that they will get their money back, but over a considerably longer period, reports the Bloomberg News Service.

Under the proposal the Ematum bonds will be swapped for longer maturity sovereign bonds – but at a much higher interest rate.

In 2013, Ematum, then a newly created company, issued bonds on the European market for US$850 million. The repayment terms were extremely tough – the money was to repaid over seven years, with a two year grace period, and at an interest rate of LIBOR (London Inter-Bank Ofered Rate) plus 6.5 per cent.

The proposal now on the table is that the Ematum bonds (now down to US$697 million, after the first repayments) will be swapped for government bonds for US$585.5 million that mature in 2023. The interest rate, however, shoots up to 10.5 per cent.

For the government, the advantage is that it will not have to repay the capital until 2023. Until then it will only be obliged to make annual interest payments. This will bring annual payments down from around 200 million to 60 million dollars, much to the relief of the Mozambican treasury.

The government’s assumption is that by 2023 revenue will be flowing in from the vast natural gas fields in the Rovuma Basin, off the coast of the northern province of Cabo Delgado. The export of liquefied natural gas (LNG) will begin in around 2020, and the forecast is that Mozambique will become the third largest exporter of LNG in the world.

According to Bloomberg, the biggest holder of Ematum bonds is AllianceBernstein LP, a global asset management company based in New York. One of its managers, Marco Santamaria, said “We believe Mozambique has very high potential and there’s plenty of reason to believe it will come to fruition by 2023. The terms that have been offered are reasonably attractive. I believe the offer will be approved.”

Luc D’hooge, head of emerging market bonds at Vontobel Asset Management, another significant holder of the Ematum securities, told the Reuters news agency “It is a good deal for the investors and it is a good deal for Mozambique – to me it looks very fair”.

Cited in the London “Financial Times”, Kevin Daly, a fund manager at another Ematum bondholder, Aberdeen Asset Management, said he plans to accept the offer. He added “I think this deal will reflect well on the country and allow them to come back to markets in the not too distant future”.

Marco Ruijer, a money manager at NN Investment Partners, the fifth biggest holder of Ematum securities, said “The two good things are the 5 percent upside and the coupon (i.e. interest rate). They’ve proven that they want to do an investor-friendly deal.”

As an incentive to the bondholders to make up their minds quickly, those who accept the offer by Wednesday will get an exchange ratio of 105 per cent for their bonds. Those accepting after March 23, but before the final consent deadline on March 29, will get the normal exchange rate of 100 per cent.

In other words, while the government is offering 80 cents worth of new government bonds for each dollar of Ematum debt, those who accept by Wednesday will receive 84 cents on the dollar.

For the deal to take effect, 75 per cent of the bondholders must accept by 29 March. If that threshold is reached, the others will be forced to accept.

Source: AIM