Huge bank fees charged on MAM’s loan

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Huge bank fees charged on MAM’s loan

8:18 CAT | 13 Jun 2016

REuters (File photo) / A view of VTB Bank headquarters in Moscow

The Russian bank VTB charged the Mozambican company MAM (Mozambique Asset Management) 35 million US dollars in bank charges for the loan of 535 million dollars arranged in 2014, according to a report from the news agency Reuters.

These charges, referred to as “arrangement fees”, are 6.54 per cent of the loan. Bankers contacted by Reuters say this is several times what is normally charged on such loans.

The fees are mentioned in the loan document itself, and in a letter of 13 November 2015 from VTB’s investment arm, VTB Capital, to the Maputo office of the audit firm Ernst and Young. Reuters adds that “It was unclear what, if any, role EY played. EY in Maputo declined to comment”.

Bankers in Johannesburg contacted by the news agency were not so reticent. Three of them told Reuters that charges approaching seven per cent were “excessive” and the industry norm was around one per cent.

“If it’s a really complicated credit, you might push it up to 2 percent,” said one of the bankers, who requested anonymity.

Asked about the terms of the loan, VTB said it carried an annual interest rate of LIBOR (London Interbank Offered Rate) plus 8.87 per cent.

But this is significantly different from the figure given by Mozambican Finance Minister Adriano Maleiane to the Mozambican parliament, the Assembly of the Republic, last week. He said the interest rate was LIBOR plus 7.739 per cent. When hundreds of millions of dollars are at stake, a difference of over one per cent is rather large.

LIBOR is a floating rate which changes every day. On Friday the LIBOR US dollar rate for 12 months was 1.2735 per cent.

VTB said the arrangement fees included interest charges that Mozambique agreed to pay up front. In other words, Mozambique was paying tens of millions of dollars before receiving any of the loan.

The Johannesburg-based bankers told Reuters that this was “an unconventional financing structure”. They said that typically interest and capital are paid back at intervals over the duration of a loan, but not at the outset.

The letter from VTB Capital to Ernst & Young confirmed disbursement to MAM of 435 million dollars on May 23, 2014 for which an “Arrangement Fee” of almost 28.5 million dollars was charged. A follow-up payment on June 11 of 100 million dollars bore a charge of over 6.5 million dollars.

Reuters added that Mozambican Finance Ministry spokesperson Rogerio Nkomo said he was unaware of the details of the fees, while the agency’s attempts to contact MAM were unsuccessful.

MAM is technically a private company – but its main shareholder, with 98 per cent of the shares, is GIPS which is owned by the social services of the State Security and Intelligence Service (SISE). GIPS is thus the investment arm of SISE.

One per cent of MAM is owned by the Mozambique Tuna Company (EMATUM) and the final one per cent by Proindicus, a company set up to provide security services for oil and gas companies operating off the coast of Mozambique.

Like MAM, EMATUM and Proindicus acquired enormous loans in the 2013-2014 period, guaranteed by the Mozambican government. Between them, the three loans amount to slightly more than two billion dollars.

According to Maleiane, MAM is intended to provide repair and maintenance services to EMATUM and Proindicus vessels, and to other shipping in the Mozambique Channel. It will set up shipyards in Maputo and Pemba and a floating dock for repairs. However, to date none of these physical assets exist.

MAM was scheduled to make its first repayment, of 178 million dollars, on 23 May. No payment was forthcoming, and the government did not step in to rescue it. So far VTB has not attempted to enforce the government guarantee, and attempts to renegotiate the loan are still under way.

A VTB official told Reuters that the Mozambican government sent a delegation to Moscow to meet senior VTB management at the end of May. Neither side has announced any outcome from this meeting.

The government says it does not wish to default on the loans – but, on the other hand, repaying these debts is not a priority.

Addressing parliament on Wednesday, Prime Minister Carlos Agostinho do Rosario said “Although not recognizing the debts contracted, by alleging that the contracts signed are null and void, is an attractive and simple option, it would have very negative consequences for the economy and for the good image of the country in the eyes of international creditors”.

But he insisted that funding debt servicing rather than agriculture, education, health and water supply “would not be in line with the undertakings given to the Mozambican public”.

“We have domestic responsibilities to make operational the pledges contained in the government programme, and these cannot be forgotten because of the responsibility to pay the Proindicus and MAM debts”, the Prime Minister added. “The government is working to find a balance between honouring the undertakings given with debts applied in the public interest, and financing the priorities of social and economic development”.

Source: AIM