Government releases details of Proindicus, MAM loans – AIM report

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Government releases details of Proindicus, MAM loans – AIM report

9:13 CAT | 23 Nov 2016

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The Mozambican Ministry of Economy and Finance has, at the insistence of creditors, released details of the loans granted to the security-linked companies Proindicus and MAM (Mozambique Asset Management), by the European banks Credit Suisse and VTB of Russia.

Those two loans, totaling 1.16 billion US dollars, were illicitly guaranteed by the previous government, under President Armando Guebuza, in 2013-2014, in violation of the limits in the budget law on state guarantees.

The creditors who are demanding explanations are the “Global Group of Mozambique Bondholders” (GGMB), who purchased the 850 million dollars worth of bonds issued by the Mozambique Tuna Company (EMATUM), again with a government guarantee, in 2013.

In April this year 81.5 per cent of the bondholders agreed to a government proposal to replace the Ematum bonds by sovereign government bonds with a longer repayment time, but at a higher interest rate.

The EMATUM bonds were exchanged for government bonds that mature in 2023. The interest rate, however, shot up to 10.5 per cent.

But the parlous state of the Mozambican economy is such that the government cannot even make payment of the interest due on these bonds in 2017. The government explained its plight at a meeting with creditors in London on 25 October, and argued that its only option was to renegotiate its commercial debt, including the former Ematum bonds, so as “to reach agreement with creditors on terms compatible with IMF debt sustainability criteria as soon as possible”.

The bondholders are threatening not to negotiate with the government until the full audit, by the US company Kroll, of Proindicus, MAM and Ematum is published, and that will not be until February at the earliest.

They also demanded to know the details of the “hidden loans” to Proindicus and MAM. These loans were “hidden”, in that they were not publicly disclosed either to the Mozambican public or to the International Monetary Fund (IMF) and the country’s other foreign partners. When the loans become public knowledge in April, the IMF accused the Mozambican government of hiding the country’s true debt situation, and reacted by suspending its programme with Mozambique. Other western donors and financial agencies followed suit, and suspended financial assistance to Mozambique.

To placate the creditors, the government has now published details of the loans and they can be found on the website of the Ministry of Economy and Finance.

Thus the Proindicus loan from Credit Suisse, of 622 million dollars, has a final maturity date of 21 March 2021. An initial payment has been made, and the outstanding amount is 597.12 million dollars.

The first, and so far only payment, was 24.88 million dollars on 21 March 2016. The payment schedule is 119.424 million dollars on 21 March every year up until 2021. That is only the principal. The interest rate is 3.75 per cent, payable annually.

As for the MAM loan of 535 million dollars from VTB, nothing at all has been repaid so far. As a result MAM is now in arrears of 175.5 million dollars. The first repayment fell due on 23 May this year – but neither MAM nor the government was able to pay.

The final maturity date is 23 May 2019. MAM should pay the principal in instalments of 133.75 million dollars on 23 May every year between 2016 and 2019.

The interest rate is much higher than Credit Suisse is charging on the Proindicus loan. The rate demanded by VTB is an eye-watering LIBOR (London Inter-Bank Offered Rate) plus seven per cent. The arrears are the initial capital repayment, plus the interest due this year.

Perhaps for the sake of completeness, the Ministry also includes the details of the ex-EMATUM bond. The renegotiation in April turned this into a “bullet bond” – that is, a bond where all the capital is repaid in a lump sum at the date of maturity. Before then, only interest is paid.

The Ministry puts the total remaining value of this bond at 726.524 million dollars. The capital should all be paid on 18 January 2023.

The interest rate of 10.5 per cent should be paid in six monthly instalments, on 18 January and 18 July each year, as from 2017.

But Mozambique cannot pay any of this. In a letter to creditors last week, the Ministry repeated the position stated at the 25 October meeting in London – namely, that there is no money available to pay the creditors, at least not in the short term. “The deteriorating macro-economic and fiscal situation”, the ministry statement stressed, “leaves the government with no capacity to make payments to external commercial creditors in 2017 and very little capacity to make payments until 2022 even under an optimistic scenario”.

You may read the government’s full document here https://clubofmozambique.com/news/summary-key-terms-certain-commercial-external-indebtedness-republic-mozambique/

Source: AIM