Mozambique to continue debt restructuring talks despite 'tuna bond' court ruling
In file CoM
The Mozambican Ministry of Economy and Finance on Tuesday announced that it has reached agreement with creditors on the restructuring of the debt arising from bonds initially issued in the name of the Mozambique Tuna Company (Ematum), one of three security related 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 previous government, 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.
According to the Tuesday announcement, the government has now reached agreement with the holders of 60 per cent of the bonds. They are Farallon Capital Europe LLP, Greylock Capital Management, LLC, Mangart Capital Advisors SA and Pharo Management LLC. The first two are based in the United States, Mangart in Switzerland, while Pharo has its head office in London.
Under the deal, the Ministry said, “the bondholders will be invited to exchange their existing holdings for two new instruments presenting senior unsecured obligations of the Republic of Mozambique: a new series of debt securities (“New Bonds”) and a series of value recovery instruments linked to fiscal revenues from the Area 1 and Area 4 gas projects in Mozambique (“VRIs”).”
This refers to Rovuma Basin Offshore Areas One and Four off the coast of the northern province of Cabo Delgado, where enormous reserves of natural gas have been discovered. Projects to produce liquefied natural gas (LNG) are under way, developed by consortia headed by the US company Anadarko Petroleum and the Italian energy firm ENI.
The Ministry statement thus confirms fears that, even before any LNG is produced, the government has committed revenues from this resource to paying off illegal debts incurred by its predecessor.
The new bonds will have a face value at issuance of 900 million dollars. This is slightly less than the sum of the outstanding principal and accrued but unpaid interest on the Bonds as of 9/30/2018 – which were 726,524,000 and 189,441,133 dollars, respectively.
The bonds will mature on 30 September 2033. The coupon (interest rate) will be 5.875 per cent, and interest is to be paid twice a year, at the end of March and the end of September. The first interest payment is due on 30 March 2019.
Payment of the principal is postponed by a decade until 2029, when revenue from the natural gas should be flowing into the government’s coffers. The principal should be paid in five equal annual instalments, beginning in September 2029 and ending in September 2033.
As for the VRIs, the Ministry says there will be an annual payment “equal to five per cent of the prior year’s aggregate fiscal revenue derived by Mozambique from the Area 1 and Area 4 natural gas projects (including the sum of royalties, production bonuses, government’s share of profit gas, corporation tax, and withholding tax on dividends and interest) to be distributed ratably to the holders of VRIs”.
There will be a “cumulative Nominal Payment Cap of 500 million dollars”, and the final financial year for which this arrangement is applicable will be 2033.
The Ministry adds that “precise payment dates and mechanism for calculating and verifying payment amounts to be determined in definitive documentation”.
The deal is not yet done. The Ministry says it “is conditional on the parties reaching agreement on mutually satisfactory documentation setting out the detailed terms of the restructuring including implementation, and the Ministry obtaining all necessary approvals, including parliamentary and government approvals in Mozambique”.
These arrangements will certainly anger opposition parties and civil society organisations who have argued that the Ematum, Proindicus and MAM debts should be declared odious, and that Mozambique should not pay a penny to the bondholders.
Natural resources management in Mozambique