Mozambique Said to Be Hours Away From Default as Talks Stall

  • Government missed $178 million interest payment due May 23
  • Mozambique last month disclosed $1.4 billion of hidden debt

Mozambique is hours away from defaulting on its debt as talks about rescheduling a loan from Russia’s VTB Bank PJSC to a state-owned company falter, according to a person familiar with the situation.

A grace period for a state-guaranteed loan given to Mozambique Asset Management after it missed a May 23 deadline to make a $178 million interest payment will end Thursday, said the person, who asked not to be identified because they’re not authorized to discuss the matter publicly. The company has about five hours left before the grace period expires, the person said at 11.37 a.m. Maputo time.

A person who answered the phone at Mozambique’s Finance Ministry referred questions to a phone number that didn’t connect, while a second call was cut off when Bloomberg called four times seeking comment. Finance Ministry spokesman Rogerio Nkomo didn’t immediately respond to an e-mailed request for comment.

A government official said on May 24 the government is unwilling to convert the loan extended to MAM into sovereign debt to avoid a default. A failure by MAM to reschedule the loan by the end of the day may trigger a sovereign default by Mozambique on its other obligations, including its $727 million Eurobond due in January 2023 and a $622 million loan made to state-owned Proindicus, the person said.

Hidden Debt

The Proindicus loan and the $535 million MAM facility are among $1.4 billion of debt that the Mozambican government had previously kept hidden before disclosing their existence to the International Monetary Fund last month. While Proindicus made a $24 million interest payment on its debt on March 21, Finance Minister Adriano Afonso Maleiane said last week MAM won’t be able to honor its interest payment.

VTB Capital Global Head of Communications Olga Podoinitsyna wasn’t immediately available when Bloomberg called the company’s offices in Moscow seeking comment and the company didn’t immediately respond to e-mailed questions.

Fitch Ratings cut Mozambique’s credit rating by one level to CC this week, saying disclosure of the new debt revealed significant short-term repayment obligations. Moody’s Investors Service views Mozambique as already in default, Aurelien Mali, senior analytical adviser on Africa, said May 24.

The problem for the cash-strapped country, given the suspension of donor funding, is that the debt installment represents about 10 percent of its reserves if it goes ahead and pays up, Exotix Partners LLP said in an e-mailed note. Mozambique held $1.8 billion in foreign exchange in April.

“So it avoids a messy default now, but puts the country under even more macro pressure as it runs out of money,” Exotix said. “But if the government doesn’t make the payment, then it risks triggering more uncertainty and complicating an already messy situation.”

The yield on Mozambique’s Eurobond rose 35 basis points to 17.1 percent by 5:24 p.m. in London.

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