Mozambique creditors warn of “statutory compensations” claim

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Mozambique creditors warn of “statutory compensations” claim

2:59 CAT | 24 Jan 2017

Owners of Mozambican public debt have warned that they reserve the right to demand “statutory compensations” following the failure to pay nearly US$60 million of the January public debt repayment instalment.

“In the absence of a constructive approach, including the payment of the coupon now in default by the Government of Mozambique and its consultants, the committee reserves all forms of legal compensation,” reads a statement released yesterday.

According to the note, the group of creditors, which holds more than 60 percent of the US$726.5 million public debt issued in April last year and whose January payment instalment the Mozambique government had announced it would be unable to make, says it remains available for discussion with the authorities.

“Although the negotiations are premature, the Committee is prepared to discuss its position and the analysis of all aspects of the situation that Mozambique is facing,” the text adds. It goes on to note that “to date, neither the Government nor its advisers has addressed the committee on these initial discussions, prior to any stage of potential negotiation”.

The group, which includes the investment houses AllianceBernstein, Franklin Templeton Investment Management, Greylock Capital Management, NWI and Pharo Management, calls the failure to pay the January installment “a retrograde step for the prospects of Mozambique engaging in good faith negotiations with bondholders”.

The creditors also claim that the financial default “was unnecessary”, since Mozambican public finances registered improvements in the last quarter of last year that provided sufficient liquidity to make the payment.

“The default was unnecessary, given the improvement since October in Mozambique’s economic and financial situation,” the statement adds, criticising the diversity of criteria concerning Mozambique’s financial commitments, as commercial debt is being paid, indicating “a strategic default targeting bondholders”.

The Mozambican Finance Ministry confirmed last Monday that it would not pay the January provision of US$59.7 million for sovereign debt maturing in 2023, thereby leading to default.

“The Ministry of Economy and Finance of the Republic of Mozambique wants to inform the holders of the US$726.5 million maturing in 2023 issued by the Republic that the payment of interest on the bonds, worth US$59.7 million, due on January 18, will not be paid by the Republic,” the statement reads.

The document recalls that Mozambique had warned about the lack of liquidity in October and stresses that it views creditors as “important long-term partners whose support for the necessary resolution of the debt process will be critical to the future success of the country”.

Following this announcement, Standard & Poor’s cut the country’s rating to ‘SD/D’, that is, partial financial default, and suggested that non-payment was a government strategy to force debt holders to negotiate restructuring, which they have so far declined to do.

Fitch has maintained the country’s rating but warned that Mozambique’s failure to pay the January installment will “increase the uncertainty” over the restructuring of sovereign debt issued in April last year.

Moody’s also considered the nonpayment a default but did not lower its rating, saying its Caa3 assessment already implied an assumption of potential losses for creditors of 20 to 35 percent, potentially reaching 50 percent, according to the history of sovereign defaults.

Source: Lusa