Mozambique set to place up to €3.2M in treasury bond issue

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Mozambique set to place up to €3.2M in treasury bond issue

6:24 CAT | 19 Aug 2024

File photo: Notícias

The Mozambican state will on Tuesday attempt to place on the market an issue of up to 227 million meticais (€3.2 million) in treasury bonds, through a stock exchange operation, it was announced this Sunday.

The operation, according to a notice from the Mozambique Stock Exchange (BVM) consulted by Lusa, consists of the first reopening of the ninth series of Treasury Bonds 2024, carried out on August 6, intended for direct subscription by Specialized Operators.

The issue will have a fixed nominal interest rate of 15.00% during the first four semi-annual payments and variable in the last six semi-annual payments, in addition to a maturity of five years.

On 6 August, Mozambique placed 125 million meticais (€1.8 million euros) in a treasury bond issue, with demand exceeding supply five times, according to previous information from the BVM.

READ: Mozambique: Authorities place €1.8M in treasury bond issue

The proposals submitted by the Specialized Treasury Bond Operators indicate that the supply/demand ratio was 270.17%, reaching 643 million meticais (€9.2 million).

The issue (ninth series of 2024), directly subscribed by the Specialized Operators, raised at the time an amount below the maximum forecast in the initial notice, which was 238 million meticais (€3.4 million).

Mozambique’s domestic public debt reached 364,251 million meticais (€5,213 million), after growing by the equivalent of more than €740 million in five months of 2024, according to data from the central bank previously reported by Lusa.

According to the Economic Situation and Inflation Outlook report for May, domestic public debt contracted between December 2023 and May of this year, excluding that resulting from loan contracts, leases and overdue liabilities, “increased by around 51,910 million meticais”, equivalent to €743 million, by the end of May.

Overall, the debt issued domestically represented the equivalent of 23.7% of Mozambique’s gross domestic product (GDP) on the same date, and was essentially made up of Treasury Bills, with a stock on May 28 of 99.853 billion meticais (€1.429 billion), and Treasury Bonds, which amounted to 169.089 billion meticais (€2.420 billion), as well as 95.309 billion meticais (€1.364 billion) in advances at the Bank of Mozambique.

In April, the 2023 public debt report by the Mozambican ministry of the economy and finance warned of the rate of growth of domestic debt, which, if it continues, threatens the process of reversing its unsustainability: “If domestic debt continues to grow at the current rate over the next five years, the breakdown of the stock could balance at 50% domestic/50% external by 2029, with a portfolio dominated by purely commercial instruments, a scenario that would compromise the possibilities of reversing the unsustainability of the debt in this generation.”

As the interest rates on Treasury Bills (BT, short maturities) and Treasury Operations (OT, longer maturities) “have increased, the cost of domestic financing has been driving a continuous upward adjustment in the weighted average interest rate of the government’s loan portfolio”.

The rate went from “5% in 2021 to 5.8% in 2022 and now 6.5% in 2023, amounting to a cumulative increase of 150 basis points in two years,” says the report, which also warns that the “refinancing risk, reflected in the growing concentration of maturities” of public debt “in the short-term horizon, represents the greatest vulnerability.”

The domestic debt accumulated until December 31, 2023, amounted to the equivalent of US$4.911.3 billion (€4.616 billion). The weight of BT issues in the total stock rose from 4% in 2019 to 9% in 2023, while that of OT doubled to 16% in the same period.

Source: Lusa