Greece's Secret Debt Evoked in Mozambique $1 Billion Hole

  • Debt disclosed less than two weeks after tuna-bond swap
  • Deals complied with international law, lender VTB says

For some Africa watchers, Mozambique’s confession of a $1 billion debt hole seems strangely reminiscent of another country -- one that’s also in contentious talks with the International Monetary Fund.

The predicament reminds analysts including Rand Merchant Bank’s Nema Ramkhelawan-Bhana of Greece’s concealment of its true fiscal dilemma in the late 1990s and early 2000s. The IMF said last week that Mozambique failed to disclose government-guaranteed loans provided by Credit Suisse Group AG and VTB Capital Plc, sending the southern African country’s bond yields surging.

“Obviously there’s differences in terms of scale and size and exactly what they are understating,” Ramkhelawan-Bhana, an Africa analyst at FirstRand Ltd.’s Johannesburg-based investment banking unit, said by phone on Wednesday. “It’s very much a case of them being very opaque about their statistics and of the most important aspects of their economic health, so I think that’s quite a good comparison to draw.”

The revelation of Mozambique’s hidden debt came less than two weeks after investors in a $697 million amortizing note sold by a state-owned tuna-fishing company and due in September 2020 agreed to swap their holdings for an interest-only $727 million sovereign note maturing in January 2023. Holders of around 85 percent of the debt of Empresa Mocambicana de Atum SA, or Ematum, voted to accept the restructuring on April 1, after Mozambique, one of the world’s poorest countries, said it wanted to lower its annual debt-service costs by reducing principal payments over the next few years.

More Uncertainty

“You can draw some parallels,” Hanns Spangenberg, an economist at NKC African Economics in Paarl, outside Cape Town, said by phone. “I think there’s an even higher degree of uncertainty in Mozambique than there was in Greece.”

Yields on Mozambique’s new Eurobond climbed 189 basis points since April 14, the day before the IMF made its announcement, to a record of 14.61 percent on Thursday. The yields were 17 basis points lower at 14.44 percent as of 3:53 p.m. in the capital, Maputo, on Friday.

The bonds have lost 8.2 percent since peaking on April 13, a week after they were issued. That compares with a 0.2 percent average gain for high-yielding emerging market sovereign dollar debt in that period, according to data compiled by Bloomberg.

Credit Suisse and VTB managed the debt swap earlier this month. The Ematum bond was originally a loan from the two banks meant for the purchase of tuna-fishing boats. It was then packaged into so-called loan participation notes and sold to global bond investors.

VTB was assured by Mozambique’s Ministry of Finance that all government-guaranteed financing was disclosed to the IMF, a person familiar with the transactions said. The Moscow-based bank said in an e-mailed statement on Thursday the deals were “in full compliance with national and international law.” Adam Bradbery, a London-based spokesman for Credit Suisse, declined to comment by phone.

Mozambique is facing a cash crunch as it grapples with a fall in prices of commodities such as coal. The metical’s 38 percent plunge against the dollar since the start of last year has also made it more expensive for the government to pay off its debt, about 80 percent of which is denominated in foreign currencies. The metical weakened 0.2 percent to 52.73 per dollar by 3:03 p.m. on Friday.

“Mozambique’s newly disclosed debt burden is unmanageable and it is increasingly likely that the IMF and World Bank will allow the sovereign to default on its obligations,” Robert Besseling, executive director of risk advisers EXX Africa, said in an e-mailed note. “The prospect of a sovereign default by Mozambique in the next few months has now become likely.”

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