Ematum bondholders reject government proposals

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Ematum bondholders reject government proposals

7:59 CAT | 23 Mar 2018

DW (File photo)

A group representing the majority of holders of Eurobonds issued in 2013 to raise funds for the Mozambique Tuna Company (EMATUM) have rejected all the proposals put forward by the Mozambican government on Tuesday to holders of Mozambique’s commercial debt.

According to the legal advisor to the Global Group of Mozambique Bondholders (GGBM), Thomas Laryea, from the law firm Cooke Robotham, “this is a non-starter for the Eurobond holders”.

GGMB states that it represents or has the backing of over eighty per cent of holders of the Eurobonds. These funded a loan of 850 million US dollars to EMATUM, a company with very few assets and no prospect of ever being able to repay its loans.

This was part of over two billion US dollars of loans taken out in 2013 and 2014 for Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management), all of which were set up essentially by the State Security and Intelligence Service (SISE).

While the Proindicus and MAM loans came straight from the European banks concerned (Credit Suisse and VTB of Russia), the loan to Ematum took the form of a bond issue on the European bond markets.

In April 2016, the Mozambican government ratified a deal under which the EMATUM bonds were replaced by sovereign government bonds with a longer repayment time, but at a higher interest rate.

The original repayment terms were extremely tough – the money was to be repaid over seven years, with a two year grace period, and at an interest rate of LIBOR (London Inter-Bank Offered Rate) plus 6.5 per cent.

The proposal accepted by the bondholders is that the EMATUM bonds (now down to 697 million dollars, after the first repayments) would be swapped for government bonds for 585.5 million dollars that mature in 2023. The interest rate, however, shot up to 10.5 per cent.

But this deal was reached just a couple of weeks before the true scale of the illicit lending became clear. The former government, under President Armando Guebuza, had kept the Proindicus and MAM loans completely secret – even though they amounted to over 1.1 billion dollars.

The then governor of the Bank of Mozambique, Ernesto Gove, even declared publicly that he had never heard of Proindicus. It seems that key members of the new government – including Finance Minister Adriano Maleiane – also knew nothing about the two loans and believed that the problem was restricted to the Ematum bonds.

All three loans had been illicitly guaranteed by the Guebuza government, in violation of the 2013 and 2014 budget laws, and of the clause in the Mozambican constitution which states that only the country’s parliament, the Assembly of the Republic, can authorise such debts.

When the true scale of the loans became clear, the International Monetary Fund (IMF) suspended its programme with Mozambique. Other western partners followed suit, and all 14 donors who used to provide direct support to the state budget halted their disbursements. Thus Mozambique suddenly found itself facing a huge hole in its budget, since the budget support amounted to hundreds of millions of dollars a year.

Under such circumstances, there could be no question of honouring the illegal guarantees for the Ematum, Proindicus and MAM loans. At a meeting with creditors in London in October 2016, the government said it was quite impossible to pay any interest, let alone principal, on the commercial debt for years to come.

Maleiane repeated that message to the creditors at another London meeting on Tuesday. He rejected the attempt by the Ematum bondholders, based on the April 2016 deal, to secure any preferential treatment. The bonds (now renamed “MOZAM2023” bonds) will be treated in exactly the same way as the Proindicus and MAM loans.

Maleiane told the Tuesday meeting that, although there is no way that Mozambique can pay anything in the immediate future, as from 2023 there could be moderate levels of interest payments and limited payments of the principle. But creditors will be expected to take a “haircut”, by writing off half of the arrears on interest payments.

The Mozambican government offered three scenarios, with repayment levels ranging from eight to sixteen years. The bondholders rejected all of them.

Ian Clark, the legal counsel to the Mozambican government on debt issues at the British law firm White & Chase, told AIM that “the Minister and his legal and financial advisors presented to creditors the current macro-fiscal situation in Mozambique and proposed debt restructuring guidelines. The meeting was well attended and discussions are expected to take place in the near future with holders of the two outstanding sovereign guaranteed loans and the sovereign Eurobonds with a view to finding a sustainable and mutually satisfactory debt solution”.

If the creditors refuse to reach an accommodation with the government, the other option is simply to renounce the entire two billion dollar illicit debt as “odious” and pay nothing at all to the creditors.

The government has never mentioned this possibility, but it is the favoured option of Mozambican civil society bodies who do not see why Mozambique should be forced to pay anything at all for a deal that was always illegal and has brought the country no benefit at all.

In Britain, the Jubilee Debt Campaign takes the same line. Earlier this week the Director of the Campaign, Sarah-Jayne Clifton, declared “the lenders and government officials behind these outrageous deals need to be held to account for their actions. The people of Mozambique should not have to pay one cent on these secret debts. Any creditor who feels misled should seek recompense from the banks which arranged the secret loans, Credit Suisse and VTB, and from any individuals who may have profited from the deals.”

Source: AIM