Mozambique’s Eurobond Strategy May Damage Restructure Prospects

MAPUTO (Capital Markets in Africa) – Mozambique’s decision to skip an interest payment on its Eurobonds this week was a strategic move that will be damaging for the debt-restructuring process it started, a group of investors said.

“The non-payment of Wednesday was a strategic default and was not driven by the inability to make the payment,” said Charles Blitzer, a Washington-based consultant who’s advising a group of creditors that hold the majority of the bonds. “This strategy we think is not conducive to moving forward, not just with us but more broadly. It’s not conducive to restoring confidence from future lenders and investors.”

The southern African nation missed a near-$60 million coupon payment on Jan. 18 for its $727 million Eurobonds issued in March, prompting S&P Global Ratings to cut its assessment of Mozambique to “selective default.” The government has a 15-day grace period to pay the interest, but S&P doesn’t believe this will happen, it said. The default could be part of government’s strategy to try compel bondholders to negotiate a restructuring, which they’ve so far resisted.

The government, advised by Lazard Ltd. and White & Case, said in October it couldn’t service its external commercial debts and hoped to reach an agreement in principal over a restructuring with creditors by the end of 2016. Talks with the bondholders are yet to start.

The group of Eurobond holders advised by Blitzer won’t start negotiations until an audit into two previously undisclosed government loans is published, as well as details of a new aid package from the International Monetary Fund. Still, they’re ready to hold preliminary talks if the government approaches them, he said by phone Thursday.

“We continue to be prepared to discuss the committee’s views and analysis of all aspects of the situation facing Mozambique,” said Blitzer, a former IMF official who runs his own consultancy. “So far, neither the government nor the advisers have contacted us.”