MAPUTO (Capital Markets in Africa) – A group of key Mozambique bondholders laid down terms to the embattled government ahead of restructuring talks, calling on it to revoke guarantees on loans taken on by two state-owned companies.

The southeast African nation, which defaulted on its only Eurobond in January, should also liquidate the two firms — ProIndicus and Mozambique Asset Management — as well as a third, a tuna-fishing company known as Ematum, the so-called Global Group of Mozambique Bondholders said.

It was the first response from bondholders to an audit of Mozambique’s debts by Kroll LLC, commissioned by the country’s attorney-general and released on June 24. The corporate-investigations firm said the three companies failed to account for about a quarter of $2 billion of state-backed loans that they took on in the past five years.

“It is evident that there is no basis — in either Mozambican or English law — for the Mozambique government to honour the purported guarantees of the Proindicus and MAM loans,” according to the statement. “Disavowal of those purported guarantees and the liquidation of ProIndicus, MAM, and Ematum is the appropriate restructuring that needs to take place to clean up the system, to insulate the government balance sheet from further liabilities, and to restore access to external financing at the lowest cost to Mozambique.”

Antonio do Rosario, president of the three companies and a senior member of Mozambique’s intelligence service, didn’t respond to an email requesting comment about the investors’ statement. But he criticized Kroll’s report as an attack on the country’s “economic independence” and said some information it wanted had to be kept private to protect state security, according to a letter seen by Bloomberg and which he authenticated.

Bondholder Group
GGMB, which is advised by Thomas Laryea, a lawyer at Cooke Robotham, and former International Monetary Fund official Charles Blitzer, was set up last year by investors holding the bulk of the bonds, including Franklin Templeton and New York-based hedge funds Greylock Capital Management LLC and NWI Management LP. Some of its members have since changed.

The group refused to start formal restructuring talks with Mozambique and its adviser, Lazard Ltd., until the audit was published and they’d seen an outline of a new bailout program between the government and IMF. The Washington-based lender halted funding to Mozambique last year when it discovered the existence of the ProIndicus and MAM loans, which the government had kept secret.

GGMB misconstrued the Kroll report, according to Russia’s VTB Bank PJSC, which arranged the MAM loan. “The loans to Proindicus and MAM were recognized as public debt and the issued guarantees remain legal and binding obligations of the state,” it said Thursday.

The $727 million Eurobond, due in Jan. 2023, has rallied from a low of 55 cents on the dollar in mid-January to 73 cents. Sentiment toward the country has improved thanks to a 19 percent rise in the metical against the dollar this year, making Mozambique’s foreign debts cheaper to service, and an increase in coal exports. Investors said they were also encouraged by an Eni SpA-led consortium signing off on a $7 billion gas project last month.

These developments have improved Mozambique’s capacity to pay down its debts over the next five years by $850 million, the bondholders said.

“The combination of the improved economic trajectory and an appropriate response to the findings of the Kroll report provides a path for Mozambique to re-establish credibility in the international financial markets,” they said.

There’s no need for the terms of the Eurobond to be changed as long as the ProIndicus and MAM guarantees are cancelled, said Laryea, the lawyer advising the bond investors.

“Mozambique has ample payment capacity to meet its legitimate external debt claims,” he said in an interview on Thursday.

The IMF is sending a team to Mozambique next month to discuss the Kroll report and assess the economy. It said the probe was an “important step toward greater transparency regarding the loans,” but it noted the “information gaps.”

Source: Bloomberg Business News