U.S. Probe and Credit Suisse Lawsuit Roil Mozambique Tuna Bonds

MAPUTO (Capital Markets in Africa) – Mozambique’s Eurobonds have taken a turn for the worse. After ending 2018 as the biggest gainers among more than 70 countries in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index, they’re at the bottom so far this year. The $727 million of securities due in 2023 have lost 6.9 percent in price terms, which compares with the average return in emerging markets of 3.3 percent.

The bonds have been in default since early 2017 but soared in November after the government reached a draft restructuring agreement with holders including New York-based hedge fund Greylock Capital Management LLC. They’ve since been hit by the latest twists in Mozambique’s debt scandal.

In late December, South Africa arrested former Mozambican Finance Minister Manuel Chang as part of U.S. Department of Justice investigation. American officials want to extradite him for allegedly being part of a scam, along with three former Credit Suisse Group AG bankers, to use at least $200 million of Mozambican funds for bribes and kickbacks.

That money came from government-guaranteed loans totaling about $2 billion that Mozambique took on for three state companies in 2013 and 2014. About 40 percent was for Ematum, a tuna-fishing company, which was later converted into the Eurobonds.

Then last month, Mozambique’s attorney-general started a lawsuit in London against Credit Suisse and other companies involved with the loans. The impoverished southern African nation wants the guarantee on one of them — worth $622 million to a firm named ProIndicus — to be canceled. Credit Suisse, which arranged the Ematum and ProIndicus debt, denies wrongdoing and says the three bankers deceived it.

The saga has dampened investors appetite for the bonds, the price of which has dropped to about 85 cents on the dollar from 93 cents at the beginning of 2019. It’s also seemingly stalled the restructuring. Holders had hoped by now to finalize a swap into a longer-dated Eurobond maturing in 2033 and another instrument giving them a share of Mozambique’s future revenue from exports of liquefied natural gas. As long at the tuna scandal drags on, their hopes may be be dashed.

Source: Bloomberg Business News