Moody’s likely to upgrade Mozambique’s ratings if country enters IMF program

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Moody’s likely to upgrade Mozambique’s ratings if country enters IMF program

2:15 CAT | 18 Feb 2019

Moody’s rating agency said on Monday that it would likely upgrade Mozambique’s ratings if, “after the completion of the current restructuring,” the country entered an IMF program.

“Moody’s would likely upgrade Mozambique’s ratings if, after the completion of the current restructuring, it entered an IMF program that provided credible financial backing and increased the likelihood of reforms that improved government and policy effectiveness, thereby limiting future default risk for creditors,” Moody’s says.

In the report accompanying the explanation of the decision to maintain the country’s rating at Caa3 (default) but improve the Economy’s Evolution Outlook from Negative to Stable, Moody’s says the restructuring of the US$727.5 million sovereign debt and the adoption of an IMF financial program would “would involve improved prospects for debt sustainability, as measured by the Fund.”.

“Today’s decision [Friday, February 15] primarily reflects Moody’s expectation that in the restructuring of Mozambique’s sole outstanding international bond currently under negotiation, bondholders will likely incur losses as defined by the agency consistent with a Caa3 rating , reads the accompanying note disclosure of the decision.

“The stable outlook reflects Moody’s assessment that the risks around the eventual losses on the 2023 bond currently in default are broadly balanced, either side of a 20% to 35% range consistent with a Caa3 rating.”

“Even if the restructuring negotiations are derailed, the ultimate loss would likely remain within the 20%-35% range,” Moody’s estimates.

On the other hand, “if investors were to reject the current terms, it is unlikely investors would countenance significantly larger losses than 35% in a subsequent negotiation,” Moody’s notes.

Source: Lusa