The Ematum / Pro-Indicus loans and the IMF cancelled mission

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The Ematum / Pro-Indicus loans and the IMF cancelled mission

8:30 CAT | 18 Apr 2016

Youtube (File photo) / Tsukiji Fish Market - Cutting Tuna With a Sword

The International Monetary Fund (IMF) has cancelled a mission that was to have visited Mozambique in the coming week, in the light of undisclosed loans connected with the defence and security sectors.

But Finance Minister Adriano Maleiane, who is currently visiting the United States, precisely for talks with the Bretton Woods institutions. has denied that anything had been left undisclosed.

At a press conference on Friday, the director of the IMF’s Africa department, Antionette Sayeh, said the IMF “received confirmation this week from the authorities of the existence of a large amount of borrowing that had not previously been disclosed to the IMF”.

“The undisclosed borrowing exceeds one billion US dollars and significantly changes our assessment of Mozambique’s macroeconomic outlook”, she said. “We are currently ascertaining in cooperation with the authorities the facts regarding this borrowing”.

“We have advised the authorities that any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly”, Sayeh added. “Such disclosure is essential to ensure full accountability of the government to their citizens and parliament, allow an accurate assessment of the previously undisclosed debt on the macroeconomic outlook, and assess the impact of these possible transactions on the IMF-supported arrangements with Mozambique”.

An IMF mission was scheduled to visit Maputo in the coming week to review Mozambique’s arrangements under the Policy Support Instrument (PSI) and Standby Credit Facility.

A PSI is not a loan. The IMF defines it as “a flexible tool” that enables low income countries “to secure Fund advice and support without a borrowing arrangement”. It claims that the PSI “helps countries design effective economic programs that deliver clear signals to donors, multilateral development banks, and markets of the Fund’s endorsement of the strength of a member’s policies”.

The Standby Credit Facility (SCF), however, is a loan. It is a means of providing financial assistance to low income countries with short term balance of payments problems. In late October 2015, Mozambique applied for a loan of 204.5 million Special Drawing Rights (about 282.9 million dollars) from the SCF. The IMF governing board granted the request and the first instalment (about 118.9 million dollars) became available in December.

But the IMF mission has now been cancelled, “pending a full disclosure and assessment of the facts”, Sayeh said.

The first mention of “undisclosed” loans came in an article in the “Wall Street Journal” (WSJ) on 3 April, claiming that, in addition to the 850 million dollar bond issued by the Mozambican Tuna Company (EMATUM) on the European Bond Market in 2013, there was a further enormous loan to an obscure Mozambican state company, Pro-Indicus, made by Credit Suisse and VTB of Russia, two of the banks involved in the EMATUM bond issue.

This loan was supposedly for “at least 787 million dollars” – although the numbers cited by the WSJ are less than clear. It says that the initial loan to Pro-Indicus was for 622 million dollars to fund the purchase of naval vessels and radar installations. The bank is said to have approached investors in 2014 to expand the loan to 900 million dollars. The article did not give a final figure for the loan.

The WSJ cited an anonymous “person familiar with the loan”, who claimed that it would have to be repaid in full by 2021.

EMATUM bondholders were allegedly kept in the dark about the Pro-Indicus loan. Credit Suisse did not inform them about it until after more than 85 per cent of them had accepted the government’s offer to swap the EMATUM bonds for government sovereign bonds with a longer repayment period but at a higher interest rate.

But speaking in Washington to the Portuguese news agency Lusa, Finance Minister Adriano Malaeiane denied there were any “hidden loans”, and blamed the current problems on “confusion” about the funding of EMATUM.

“There was some confusion which has ended up creating problems for Mozambique groundlessly. Everything that has the state’s guarantee is guaranteed. We take everything that had been taken over by the government. This is the reassurance that I continue to give investors”, Maleiane declared.

“The international community will realize that, firstly, Mozambique is a country that has never failed to pay, and secondly, we have said to all investors that all that has a state guarantee is secure – we honour our commitments,” he insisted.

According to Maleiane, during the EMATUM bond swap a “prospectus” was drawn up with all the relevant information. This document mentioned two projects that had government guarantees, and one of these was the Pro-Indicus loan.

Maleiane confirmed that in2013, the same year as the EMATUM bond issue, Credit Suisse and VTB lent 622 million dollars to Pro-Indicus “to finance the purchase of ships and radar installations to combat piracy”.

There was nothing hidden about this, said Maleiane, and it was included in the prospectus given to the EMATUM bondholders which put Mozambique’s total foreign public debt at 11 billion dollars.

“For investors, this information was important, whether in fact the amount presented as the country’s debt included everything. And I can confirm that it did include it all,” said Maleiane.

The banks that brokered the operation did not say that that amount in the prospectus included the two loans. “It is a private loan between the state and the banks. These banks were the ones that did the transfer for multiple clients,” he added.

These statements are not entirely clear, but Maleiane appeared to be saying that the bond issue was intended to pay for both the EMATUM and the Pro-Indicus debts. From the French press of 2013, we know that the 30 boats ordered by EMATUM (24 fishing boats and six maritime patrol vessels) from the CMN shipyard in the French port of Cherbourg cost the equivalent of about 230 million dollars.

This sum, plus the 622 million dollar Pro-Indicus loan, amounts to around 850 million dollars – the sum raised by the bond issue (or “loan participation notes”) sold via the Special Purpose Vehicle EMATUM Finance 2020 b.v., set up in Holland specifically to handle the bond.

Although this seems a reasonable interpretation, it needs to be confirmed, and a detailed accounts of exactly how much money was spent on naval speedboats or on radars need to be provided, not simply to the IMF, but to Mozambican taxpayers.

Source: AIM