Debt: Russia’s VTB says it doesn’t know whether Mozambique will be able to pay January instalment

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Debt: Russia’s VTB says it doesn’t know whether Mozambique will be able to pay January instalment

3:11 CAT | 14 Oct 2016

Reuters (File photo)

The vice president of Russian bank VTB said yesterday that he does not know whether Mozambique will be able to pay a US$38 million January debt repayment instalment.

“The situation with this debt is very hard. We do not know if they will be able to pay the foreign currency coupon debt in January,” Yuri Soloviev told financial news agency Bloomberg in an interview with

Referring to public debt amounting to US$727 million (EUR658 million) that the Government of Mozambique took on at the beginning of this year, the deputy CEO of Russia’s second largest bank said: “We are being patient and trying to resolve the situation.”

According to an analyst at Exotix Partners quoted by Bloomberg, Mozambique will have to pay US$38 million (EUR34.4 million) on January 18, according to the restructuring agreed in May which increased the annual interest but postponed by three years to 2023 the payment of the entire loan.

The interest demanded by investors to transact these debt securities has now increased seven basis points to 14.9%, a decline from a high of 19.18% on 27 June when the International Monetary Fund warned that the level of public risked becoming unsustainable, and its lowest since September 14.

VTB was one of the banks which, together with Credit Suisse, organised debt restructuring, and is also one of the banks that raised an undisclosed loan for Mozambique Asset Management (MAM), a public company that failed in May to repay interest of US$178 million (EUR161 million) on a total debt of US$535 million (EUR484.4 million).

The exchange of Ematum bonds for sovereign debt securities was approved in April, and provided for an advance purchase premium of 5%, an increase in the annual interest rate from 6.3% to 10.5% and an extension of maturity from 2020 to 2023.

The proposal brought two major benefits to Mozambique. Firstly, only interest will be paid until 2023, relieving pressure on public finances and on the growth of public debt (which this year is expected to approach 100% of GDP). Secondly, the agreement defers to 2023 the payment of the entire loan.

The delay of three years is probably related to the expectation that by then Mozambique will already be able to capitalize on tax revenues from the huge natural gas reserves that have been discovered in recent years, and which put the country among the richest in this natural resource in the world.

The so-called ‘hidden debt’ scandal also involves the Ematum tuna-fishing company, which is owned by various public bodies including the Mozambican secret intelligence and got into debt with the government as guarantor, outside of the state accounts and without the knowledge of external financiers.

Initially regarded as a private business with hundreds of millions of dollars of debt outstanding on the purchase of a fishing fleet in France, it has recently been recognised that Ematum also served for the purchase of military equipment and, under pressure from donor countries, the business was covered by last year’s amending budget.

The Ematum accounts, including state-guaranteed debt worth US$850 million, have been repeatedly presented by international institutions as an example of the lack of transparency in Mozambique’s financial dealings.

Source: Lusa