Jubilee Debt Campaign says Mozambique to pay hundreds of millions more

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Jubilee Debt Campaign says Mozambique to pay hundreds of millions more

1:23 CAT | 07 Nov 2018

In file CoM

The chief economist of the NGO Jubilee Debt Campaign said the debt deal in Mozambique could cost “hundreds of millions of dollars” more than the original loan.

“The people of Mozambique should not have to pay these unjust debts,” Tim Jones told Lusa, adding that “the loans that were originally granted were given without the agreement of the Mozambican parliament to a company without revenues, and did not benefit the Mozambicans”.

“Under the agreement [announced this Tuesday in Maputo] Mozambicans may end up having to pay hundreds of millions of dollars more than the amount that was originally borrowed,” he added.

The JDC argues that banks should take on the commitments assumed by the two state-owned companies and endorsed by the state, since, on the one hand, the necessary steps had not been taken to assess the financial capacity of the entity that received the money and, on the other hand, parliament did not ratify the loans.

The Mozambican government announced on Tuesday that it had reached an agreement with Mozambican public debt holders, resuming payments in 2019 and delivering 5% of natural gas tax revenues by 2033.

“The Ministry of Economy and Finance of the Republic of Mozambique is pleased to announce that it has reached agreement in principle on the key commercial terms of a proposed restructuring transaction relating to Mozambique’s US$726,524,000 10.5 per cent Notes due 2023,” the government announced on the Ministry of Finance website.

The agreement in principle foresees the exchange of current bonds for a new issuance of sovereign debt in the amount of US$900 million and for a valuation instrument, which in practice reserves 5% of tax revenues from natural gas in Areas 1 and 4 of the Rovuma basin, up to the limit of US$500 million.

“The agreement in principle reached by the parties, and the support of the Bondholders for the proposed restructuring, 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,” the Ministry of Economy and Finance adds in the communique.

“The restructuring will likely be implemented through a consent solicitation and exchange offer relating to the Bonds, which will be launched by the Ministry as soon as practicable, likely in early 2019,” the statement goes on to say.

Thus, “holders of Bonds will be invited to exchange their existing holdings for two new instruments representing 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”).”

The new bonds, explained in the statement, will have a Face Value at Issuance of US$900 million, with maturity on September 30, 2033 and a coupon of 5.875%, “provided that a rate of 4.0% will be payable in cash and 1.875% payable via capitalisation through (and including on) 9/30/2023, with 5.875% payable in cash thereafter”.

The first six-monthly interest payment will occur in March 2019 and then again in September, and the principal will be repaid in five equal annual instalments from September 2029 to September 2033.

You may access the PDF version of the Ministry of Economy and Finance communique, in English HERE
You may access the PDF version of the Ministry of Economy and Finance communique, in Portuguese HERE

Source: Lusa