Expect No Mercy After Default, Bondholder Tells Mozambique

MAPUTO (Capital Markets in Africa) – Mozambique became the first African nation to default since 2011 after failing to make an interest payment on a Eurobond before the grace period ended, according to a bondholder.

The southern African nation did not pay a $60 million coupon on its $727 million of notes due in January 2023 by the close on Thursday, Lutz Roehmeyer, a fund manager at Landesbank Berlin Investment, said in an e-mailed response to questions.

“The view on that is of course negative,” he said. His firm oversees around $12 billion in assets, including Mozambique’s debt. “The country showed its bad will and should not expect any understanding or mercy from bondholders.”

The bond rose 1.4 percent to 59.86 cents on the dollar by 1:10 p.m. in London. It has slumped 25 percent in the past three months as speculation of a probable default mounted.

Mozambique, one of the world’s poorest nations, went from being lauded two years ago by International Monetary Fund Managing Director Christine Lagarde to being ravaged by a combination of excessive borrowing, plummeting commodity prices and delayed investments in natural gas fields.

The government announced on Jan. 16, two days before the coupon was initially due, that it wouldn’t make the payment. It wants to restructure the Eurobond as well as around $1.2 billion of government-guaranteed loans issued several years ago by two state firms, Proindicus and Mozambique Asset Management.

Commercial Creditors
The bondholders already agreed to a previous restructuring of the debt early last year, and “now the burden should be shouldered” by Mozambique’s other commercial creditors, Landesbank’s Roehmeyer said. Charles Blitzer, an adviser to a group of bondholders that Landesbank isn’t a member of, said the investors he represents will examine their options.

“They’re now in the record books permanently one more time for having defaulted on the bonds,” Blitzer said Thursday by phone from Tucson, Arizona. “Under the terms and conditions of the bonds, there are remedies which are open to bondholders. The committee reserves the right to pursue all those options.”

Lazard, Mozambique’s financial adviser for the proposed restructuring, has been in regular contact with a number of major holders of the Eurobonds, according to Ian Clark, a partner at White & Case, the government’s legal advisers. There have been “no substantive discussions” with the group Blitzer represents, he said by e-mail Feb. 1.

The country hasn’t approached the Paris Club of creditor countries for debt relief, Mozambique’s finance ministry said in an e-mailed statement responding to press reports.