Finance ministry strikes another deal with Ematum bondholders – AIM report

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Finance ministry strikes another deal with Ematum bondholders – AIM report

9:31 CAT | 02 Jun 2019

File photo: Folha de Maputo

The Mozambican Ministry of Economy and Finance announced on Friday that it has reached an agreement on the principles of restructuring the debt arising from the bonds initially issued in 2013 by the Mozambican Tuna Company (Ematum).

The agreement was reached with four members of the Global Group of Mozambique Bondholders (GGMB). These are Farallon Capital Europe LLP, Greylock Capital Management, LLC, Mangart Capital Advisors SA and Pharo Management LLC, who between them currently own or control approximately 60 per cent of the outstanding bonds.

ALSO READ: Mozambique says agrees restructuring deal with bondholders, no longer sharing gas revenues

The agreement replaces the deal struck with the bondholders in November last year, which has been declared null and void before it ever took effect. The most significant change is that income from the natural gas projects in the Rovuma Basin, off the coast of the northern province of Cabo Delgado, will no longer be used to pay off the Ematum debt.

This was a particularly outrageous clause in the November dealt which meant that, even before any liquefied natural gas (LNG) is produced, the government was committing revenues from this resource to paying off illegal debts incurred by its predecessor.

The Ministry’s Friday statement said it is anticipated that the bondholders will be invited to exchange their existing bonds for new bonds, for 900 million US dollars, with an accrual date of 15 July this year, and maturing on 15 September 2031.

Annual interest will be five per cent up until 1 September 2023, and an extraordinary nine per cent from 2023 to 2031. This compares with an interest rate of 5.875 per cent in the November 2018 agreement. In other words, the Finance Ministry has secured a somewhat lower interest rate for the first four years, but has swapped the promise of revenue from the LNG projects for an additional 3.125 per cent interest.

Under the new agreement, Mozambique will pay the interest in arrears every six months, in March and September, starting in March 2020.

The capital will be paid in eight equal six monthly instalments of 112.5 million dollars on 15 March and 15 September of the years 2028, 2029, 2030 and 2031.

To persuade the remaining bondholders to sign up to the deal, Mozambique will pay a “consent fee” of up to eight million dollars “to each Bondholder that votes in favour of the exchange on the basis of USD 11 per USD 1,000 of Bonds so voted”.

The government will also pay the bondholders an exchange payment of 32 million dollars minus an as yet undetermined sum “to defray the GGMB’s unreimbursed fees, costs and expenses reasonably and properly incurred in connection with the negotiation and implementation of the Restructuring, so that these fees, costs and expenses are borne equally and fairly amongst all Bondholders”.

The Ministry statement adds that the government and the GGMB “expect that the Restructuring will likely be implemented through a consent solicitation and formal exchange relating to the Bonds, which the Ministry intends to launch as soon as practicable such that implementation of the Restructuring is targeted to occur by no later than 1 September 2019, and sooner if feasible”.

ALSO READ: It was “difficult” for society to associate gas revenues with creditors, says Maleiane

There is no way that this agreement will be acceptable to Mozambican civil society or to opposition political parties, who are calling for outright repudiation of the illegal debts incurred by the previous government.
Ematum was one of three fraudulent companies that took out loans of over two billion US dollars from the European banks Credit Suisse and VTB of Russia in 2013 and 2014.

The banks never undertook any due diligence on the three companies, which are now all effectively bankrupt. The loans only went ahead because the government, then under President Armando Guebuza, illegally issued guarantees, which smashed through the ceiling on loan guarantees established by the 2013 and 2014 budget laws.

The 850 million dollar loan to Ematum took the form of a bond issue, but in April 2016 a deal was struck with the bondholders under which the Ematum bonds were replaced by sovereign government bonds with a longer repayment time, but at a higher interest rate.

Shortly after this deal was announced, the other two Credit Suisse and VTB loans, to the companies Proindicus and MAM (Mozambique Asset Management), for over 1.1 billion dollars, became public knowledge. The Guebuza government had hidden these loans, both from the Mozambican public and from the country’s partners, including the International Monetary Fund (IMF).

Accusing the government of concealing the country’s true macro-economic situation, the IMF suspended its programme with Mozambique, and the 14 donors who had provided direct support to the state budget halted all further disbursements. The government announced that it could not service these debts, until creditors agreed to restructure them.

The April 2016 deal with the bondholders means that the Ematum debt has a slightly different legal status to rhe Proindicus and MAM debts. But all three are undoubtedly illegal.

Furthermore, they are now the subject of lawsuits both in Maputo and in the United States. Key figures in the debts are under arrest, including Guebuza’s finance minister, Manuel Chang, who is under South African police custody, three former Credit Suisse directors and Jean Boustani, of the Abu Dhabi based company, Privinvest, which became the sole contractor for the three fake companies.

The Mozambican Finance Ministry has unwisely struck a deal with bondholders on matters which are still before the courts.

The US indictment, based on a million pages of bank statements, e-mails, transcripts of phone calls and other documents, makes it clear that Ematum was a fraud right from the start. It was set up, not to catch tuna, but to divert funds into private pockets.

The Ematum scheme, the indictment argues, was cooked up in May 2013 by senior figures in Privinvest and Credit Suisse. The fraudsters devised a project that had nothing to do with Mozambique’s legitimate fishing needs: instead, the project was “a pretext to justify the maximum possible loan amount”.

Even the 2016 swap of the Ematum bonds for new bonds directly issued by the Mozambican government was not a Mozambican idea, but came from the Privinvest and Credit Suisse conspirators and was, according to the US indictment, intended “to hide from the public and the IMF the near bankruptcy of the project companies, resulting from loan proceeds being diverted as part of the fraudulent scheme”.

Why should Mozambican taxpayers end up footing the bill for this monumental fraud?

Source: AIM