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Moody’s rating agency warned on Monday that it would maintain Mozambique’s ‘default’ status even if the deal with the creditors is made official, arguing that it implies losses for investors compared to the original agreement.
“The restructuring is likely to constitute a ‘default’ according to our definition, but once the agreement is completed, this will mitigate litigation risks,” write the experts in a Credit Opinion on Mozambique which includes an analysis of recent economic developments in the country.
“The credit profile reflects Moody’s expectation that the ongoing financial default will take place with substantial losses to private lenders due to the restructuring that is being negotiated,” which the rating agency says will bring only “modest benefits to debt sustainability” even though it will “mitigate liquidity and litigation risks”.
Moody’s detailed analysis comes less than a month after the Finance Ministry announced an agreement in principle with the holders of $726.5 million (EUR 641 million) of Mozambican public debt securities, in default since January of this year.
“The restructuring should not change our analysis of Mozambique from the economic, institutional and budgetary point of view,” Moody’s explains, noting that even with the forgiveness of US$16 million, “debt will remain high”.
On the negotiation of the political and technical support program with the International Monetary Fund (IMF), Moody’s says that the likelihood of financial assistance “has increased, but remains uncertain” due to the Fund’s demands following the disclosure of hidden debts: macroeconomic stabilisation, completion of the Kroll report and setting public debt on a sustainable path.
“The IMF classifies Mozambique’s debt as ‘problematic’, which prevents it from providing a financial assistance program,” explains Moody’s, pointing out however that “the restructuring will improve the Debt Sustainability Analysis, increasing the likelihood of a program”. “This debt represents only a small slice (6%) of government debt, and may therefore not be enough for the IMF to resume the program” which it cut off in April 2016.
Mozambique announced in early November that it had reached preliminary agreement with 60% of holders of public debt foreign currency securities, according to which the country resumes payments as early as March 2019 and delivers 5% of tax revenues from natural gas (whose exploration starts in 2022) until 2033.
The new bonds will have a face value of US$900 million, with maturity on September 30, 2033 and a coupon of 5.875%, lower than the current one of more than 10%, with which Mozambique failed to comply in January of this year.Source: Lusa
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