Mozambique government trying to renegotiate Ematum loan

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Mozambique government trying to renegotiate Ematum loan

8:21 CAT | 15 Mar 2016

In File Club Of Mozambique / Minister of Economy and Finance of Mozambique Adriano Maleiane

The Mozambican government is attempting to renegotiate the terms of the bond issued in 2013 by the Mozambican Tuna Company (Ematum) so that payment will only fall due in 2023, reports Monday’s issue of the independent newssheet “Mediafax”.

The bond issue was for 850 million dollars, fully guaranteed by the government. The declared purpose of the money was to pay for 24 tuna fishing boats and six coastal defence vessels built in a shipyard in the French port of Cherbourg.

However, according to the data published in the French press at the time, the cost of the boats was around 200 million Euros, which is about 230 million dollars. Asked what the remaining 620 million dollars is for, the then Fisheries Minister, Victor Borges, said in December 2013 it would cover such items as training, radars, satellite communications and onshore installations, but no itemized breakdown of these costs has ever been provided.

Under the original terms of the Ematum bond, the money must be repaid in seven years with a two year grace period, and at the extremely high interest rate of LIBOR (London Inter-Bank Offered Rate) plus 6.5 per cent. Last year Finance Minister Adriano Maleiane announced the government’s intention to try to renegotiate the terms of the loan.

Initial optimism that Ematum would pay for itself has proved wildly misplaced. Last year, according to figures published by the government, the Ematum fleet only caught 300 tonnes of tuna (although projections for this year are for an improbable leap to over 4,000 tonnes).

Ematum was not expected to show a profit in the first couple of years of operation. Even so, the company’s financial statements, published in May 2015, show alarmingly high losses. The accounts show that in 2014 Ematum made a loss of over 850.5 million meticais (about 24.9 million US dollars). The accumulated losses, from 2013 up to December 2014 were 1.17 billion meticais. Ematum’s own funds were thus deeply in the red, at minus 1.16 billion meticais.

Last July, Fisheries Minister Agostinho Mondlane told the country’s parliament, the Assembly of the Republic, that when the Ematum fleet is fully operational, the company could bring in over 100 million dollars a year in revenue (although a previous government estimate had been almost twice this amount, at 196 million dollars a year).

The Minister had advised the deputies to follow the Ematum website. But that website has not been updated since the Minister spoke, and so contains no recent news, no estimates of production, and no forecasts for how the company expects to survive.

A source close to the negotiations between the government and the bondholders told “Mediafax” that the government strategy is to replace the current six monthly repayments with a lump sum, covering both interest and capital, payable in 2023.

Six monthly instalments are a heavy burden for the Mozambican economy in its current state – but by 2023 income should be flowing into the state coffers from the Liquefied Natural Gas (LNG) projects in the Rovuma Basin in the far north. The predicted gas bonanza is thus expected to allow Mozambique to meet its Ematum commitments.

So the Ematum debt titles would be swapped for government debt titles for exactly the same value, but with an extra three years to pay. If the bondholders accept this proposal, it would end the enormous pressure which the regular Ematum repayments are putting on the treasury. The foreign currency currently going to the bondholders could then be used for more productive purposes.

A complicating factor is that some of the international ratings agencies, such as Standard and Poor’s, have threatened to regard alterations in the terms of the bond as a default. This would kick Mozambique’s credit rating to “SD” (Sovereign Default).

Source: AIM