Mozambique Bondholders Seek Legal Advice – Wall Street Journal

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Mozambique Bondholders Seek Legal Advice – Wall Street Journal

10:19 CAT | 22 Apr 2016

The holders of the so called “tuna bonds” believe that the bond swap arranged by Credit Suisse and Bank VTB Group had inadequate disclosures, reports the Wall Street Journal on Thursday.

According to WSJ, the bond investors who last month agreed to exchange about $700 million of bonds owed by Mozambican state-owned company Ematum due in 2020 for new Mozambican sovereign government bonds due 2023 with a higher interest rate are now seeking legal advice on the ground sthat they were not duely informed of the countours of the deal by the banks involved.

Investors who participated in a controversial restructuring of bonds in Mozambique “have begun to organize and are seeking legal advice about whether they may have been misled,” people familiar with the matter cited by the same source have said.

The move comes a week after the International Monetary Fund suspended a $55 million loan disbursement to Mozambique, saying that Mozambique n failed to disclose more than $1 billion of loans it had received from commercial banks.

The investors who agreed to a separate bond restructuring weren’t aware of those loans, either, reads the WSJ report, revealing that the bondholders decided on a conference call Thursday to interview lawyers to determine whether there was a failure to disclose material information to investors or conflicts of interest in the deal, the people said.

Investors agreed last month to exchange about $700 million of bonds owed by a Mozambican state-owned company due in 2020 for new Mozambican sovereign government bonds due in 2023 with a higher interest rate. The original bonds had been meant to purchase fishing boats, but the funds were redirected to buy military boats for the Navy, according to offering documents and public government budgetary documents. The bonds soon fell into risk of default and had to be restructured.

After tendering their bonds, some investors learned that Credit Suisse Group AG and Russian bank VTB had lent hundreds of millions of dollars more to Mozambican government entities. At least some of the loans were due to be repaid in 2021, well ahead of the new repayment date to which bondholders had agreed.

The banks arranged the restructuring deal, the original bonds and the loans in question.

While the banks didn’t inform bondholders of the existence of the loans until many had agreed to the restructuring late in March, they had included the debt in the calculation of Mozambique’s consolidated public debt that they provided to investors during the exchange, a person familiar with the offering said.

“We strongly believe there is no basis for such a potential claim as the prospectus of the underlying Eurobond disclosed all outstanding sovereign debt of the government of Mozambique including the VTB loans,” a VTB spokeswoman said in an email. “Furthermore, the bondholders were aware of the outstanding loans which formed part of the exchange negotiations”

The price of the new bonds dropped Thursday to 83.50 cents on the dollar from 84 cents the previous day, according to an investor. The bonds were quoted around 91 cents on the dollar before the IMF froze its loan program to Mozambique.

The IMF stopped its loan disbursement after investigating Mozambique’s debt in response to an April 3 report in The Wall Street Journal about the undisclosed loans.

Source: Wall Street Journal