Bondholders react to Constitutional Council ruling: “Mozambique has no jurisdiction”

Login

Register

http://www.clubofmozambique.com/

Bondholders react to Constitutional Council ruling: “Mozambique has no jurisdiction”

1:26 CAT | 05 Jun 2019

in file CoM

A legal representative of the creditors of Mozambique sovereign debt has told Lusa that the ruling of the Constitutional Council (CC) does not apply to the current debt, but to the bonds issued by the Ematum company.

[The full ruling, in Portuguese, is HERE.]

“This ruling concerns the government’s guarantee of the financing of Ematum. This guarantee expired in April 2016 and does not involve any part of the ‘Eurobonds’ [sovereign debt securities issued in foreign currency],” Thomas Laryea said.

In statements to Lusa, the legal representative of the group of holders of more than 60% of the US$726.5 million debt (about EUR 645.5 million at current exchange rates ) issued in 2016, when the Mozambican government reconverted the obligations of the Mozambican Tuna Company (Ematum) into sovereign debt through an issuance on the international market, said that this was a new obligation.

“Eurobonds constitute a new legal obligation of the Mozambican government, which is a different debtor to Ematum, and with substantially different creditors,” he said. This debt “was publicly approved by the Mozambican parliament, according to the Constitution of Mozambique and within the limits of the Budget Law,” he added.

In response to the decision of the Constitutional Council of Mozambique declaring the loan and the sovereign guarantees granted by the State to Ematum void, Laryea argued that sovereign debt “was issued in public markets, supported by documentation legally approved and in accordance with British law”.

Therefore, he concluded: “Given that the Mozambican court does not have jurisdiction over Eurobonds, we expect that the restructuring of the Eurobonds will continue as agreed”.

The issuance of Mozambique’s sovereign debt in 2016 is the result of an agreement with the creditors of Ematum bonds, in the initial amount of US$850 million (EUR 755 million), which had been launched in 2013 with state guarantees by the tuna fishing company.

In 2016, Mozambique proposed to the creditors the exchange of these bonds, whose debtor was Ematum, for a sovereign debt issuance in the amount of US$726.5 million (EUR 646 million), whose first payment was due in January 2017, but which was never paid, concluding the so-called ‘hidden debt crisis’.

The Mozambican Constitutional Council yesterday declared void the state-guaranteed loan and guarantees granted by the state in the amount of US$726.5 million (EUR 646.7 million) to state company Ematum.

In a ruling handed yesterday following proceedings opened by the Budget Monitoring Forum, platform of civil society organisations with 2000 subscribers, the judges declare “the nullity of the acts inherent to the loan contracted by Ematum and the respective sovereign guarantee granted by the Government, in 2013, with all the legal consequences”.

In July 2017, the applicants requested the declaration of unconstitutionality of the Ematum loan, a public company that benefited from the Mozambican state’s hidden debts, a dossier subject to judicial investigations in the United States of America and Mozambique for corruption.

The ruling comes four days after the government announced another renegotiation with creditors.

A source at the Mozambican Ministry of Economy and Finance told Lusa that any reaction would be issued after reading the ruling.

In 2013, Ematum contracted a US$850 million loan through the issuing of bonds (‘Eurobonds’) to Credit Suisse for the import of vessels, fishing equipment and coastal protection, without authorisation in the State Budget).

The State Budget of 2013 is silent on the subject, as well as the General State Account (CGE) of 2013, but the endorsements are allocated in the General State Account of 2014, the subject of the petition delivered in the Constitutional Council.

The Assembly of the Republic itself, called to answer the questions posed by the plea, assumed before the Constitutional Council that these are guarantees “granted illegitimately, the consequence of which is nullity”, provided that it was declared by the competent authorities, without further specification, the ruling reads.

However, the ruling also considers that “the State cannot refuse or avoid international obligations on the grounds that the Government has violated provisions of domestic law”.

For this reason, the Assembly of the Republic understood better “to approve the CGE which includes the maps demonstrating the payments made by the State regarding the debts of Ematum, in order to facilitate the control of this financial activity of the State”.

But the judges of the Constitutional Council disagree and even cite the Assembly of the Republic itself admitting the “nullity” of the acts.

“As is evident, the government has indisputably acted outside the Constitution,” which reserves the power to authorise credit operations or issue guarantees to Parliament.

The Constitutional Council also states that the executive acted with “usurpation of power” and practised null acts by ignoring the laws.

The president of the Constitutional Council, Hermenegildo Gamito, had scheduled a statement to the press about the ruling for 11:30 a.m. on Wednesday.

Source: Lusa