Moody’s lowers Mozambique’s rating further down within junk territory

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Moody’s lowers Mozambique’s rating further down within junk territory

12:46 CAT | 11 Jul 2016

Moody’s has lowered Mozambique’s debt credit risk from Caa1 to Caa3, even further depressing the country’s already ‘junk’ rating.

The recommendation to not buy the country’s debt concludes Moody’s review, initiated on May 20 after it became known in April that the country had not declared debts of more than US$1.4 billion (about EUR1.27 billion at the current exchange rate). The revelations triggered a wave of mistrust on the part of international financial markets and lead to the International Monetary Fund and other donors suspending aid to the country.

According to Moody’s, the lowering of Mozambique’s rating mainly reflects its assessment of the “weak will of the Government to honour the obligations related to debt, given the liquidity pressures”.

Currently, Mozambique is in talks with the creditors Mozambique Asset Management (MAM), which failed to make a first US$178 million (EUR 160 million) repayment of government-guaranteed debt in May, prompting Moody’s to warn if possible payment postponements and losses for creditors.

“Such a restructuring would amount to a failure by the government to honour its debt guarantee,” the credit rating agency said.

Despite the positive impact on Mozambique’s Treasury restructuring, Moody’s anticipates that liquidity pressures will continue. In particular, the rating agency considers that suspended disbursements of international aid are not expected to be reactivated in the near future.

Finally, Moody’s further assigns a negative ‘outlook’ to the rating, indicating that Mozambique’s rating could be lowered again because of the risks of litigation and the possibility that the state would not honour commitments on other securities debt.

Source: Lusa