Mozambique tuna bond, currency jump ahead of debt swap details

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Mozambique tuna bond, currency jump ahead of debt swap details

9:11 CAT | 16 Mar 2016

Reuters / The government is set to publish more details on the Ematum debt swap, including coupon and pricing, on Thursday. March 17 2016.

Bonds from Mozambique’s state-run tuna-fishing company rose to multi-month highs on Wednesday and its currency gained amid hopes for friendly terms on a planned swap of the debt.

The moves erased steep losses from earlier in the day, after Moody’s and Standard & Poor’s downgraded the country’s credit ratings.

The dollar-denominated bonds, part of an $850 million 2013 issue by Ematum, the fishing company, rose by more than 3 cents in the dollar to trade well above 83 cents – a level they last saw in early January.

Mozambique last week asked holders of the remaining $697 million of Ematum bonds – which mature in 2020 and come with a coupon of 6.305 percent – to swap their debt for new dollar-denominated 2023 bonds to smooth its debt maturity profile.

The government is set to publish more details, including coupon and pricing, on Thursday.

“The discussions are still going back and forth. In the end it will be all about how eager the Mozambique government is to get rid of this bond … How much risk do they want to take to not get the deal done?” said Marco Ruijer, a lead portfolio manager at NN Investment Partners.

Ruijer expects a coupon of around 11 percent on the new bonds.

“Some people have realised that we could see an 11 percent coupon, and prices are moving quite a bit up towards 84. Someone is buying,” he said.

The original bond was presented as funding for “tuna fishing and related infrastructure” although it became apparent that much of the cash was for maritime surveillance and security.

Meanwhile, Mozambique’s currency, the metical, recovered 5 percent to trade at just under 50 after slipping as much as 11 percent against the dollar after the ratings downgrades by Moody’s and S&P.

S&P lowered Mozambique’s sovereign credit rating from B- to CC, which is “extremely speculative” and one notch above potential default status.

Moody’s downgraded Mozambique’s issuer rating to B3 from B2, maintaining the rating on review for downgrade.

The metical has fallen 3.6 percent since the start of the year, part of a wave of currency weakness across Africa in the wake of collapsing commodity prices.

Market watchers said the downgrades should not affect efforts to tap Mozambique’s vast natural gas reserves because the private sector will raise the debt needed for such projects.

Source: Reuters