Mozambique's Bondholders Eyeing Gas Riches Back Exchange Offerby
Biggest investor in so-called tuna bonds backs restructure
Bondholders will vote on the exchange offer April 1 in London
Some of the biggest holders of Mozambique’s debt support an offer to exchange securities issued by a state-owned tuna-fishing company for longer-maturity sovereign bonds, betting the southeast African country’s gas riches will earn it enough cash in coming years to repay the debt.
The Mozambican government on Thursday proposed giving investors interest-only government bonds maturing in January 2023 in exchange for $697 million of amortizing notes due September 2020 issued by Empresa Mocambicana de Atum SA, or Ematum. While the coupon on the new debt will be 10.5 percent, up from 6.305 percent, the exchange will mean the country won’t have to make regular principal repayments, lowering its annual debt-service costs. The government believes that by 2023 it will have bolstered its finances through the development of recently discovered gas fields, which may turn it into the third-biggest liquefied natural gas exporter. Some investors agree.
“That’s the basis for our original investment,” Marco Santamaria, who helps manage about $25 billion in emerging-market debt at AllianceBernstein LP, said by phone from New York. His firm is the biggest owner of Ematum securities, according to data compiled by Bloomberg. “We believe the country has very high potential and there’s plenty of reason to believe it will come to fruition by 2023. The terms that have been offered are reasonably attractive. I believe the offer will be approved.”
Bondholders who agree to the terms by March 23 will be able to swap their holdings at a ratio of 105 percent, while those who wait until the March 29 final deadline will receive bonds equivalent to 100 percent of their holdings, according to an e-mailed statement from Credit Suisse Group AG and VTB Capital Plc, which are managing the offer.
Mozambique, one of the world’s poorest nations, is facing a cash-flow crunch as it grapples with the fall in commodity prices and a plunge in its currency, which have reduced government revenues and made it more expensive to pay off foreign loans.
The price of the 2023 bonds will be 80 cents on the dollar, equating to a yield of about 14.4 percent, according to Exotix Partners LLP calculations. Yields on the existing notes fell 7 basis points to 13.75 percent at 11:40 a.m. in London. They have dropped from a record 22.47 percent on March 1, earning investors 19 percent in that period. That compares with a 2.4 percent average gain on emerging market dollar-bonds, according to data compiled by Bloomberg.
Bondholders are expected to meet at 10 a.m. in London on April 1 to vote on the proposal. Mozambique needs the consent of 75 percent of voters by volume of bonds held for the swap to be completed.
“It’s very positive, you get a significant net present-value upside with this deal,” Marco Ruijer, a money manager who oversees about $7 billion of emerging-market debt at NN Investment Partners, the fifth biggest holder of Ematum securities, said by phone from The Hague. “The two good things are the 5 percent upside and the coupon. They’ve proven that they want to do an investor-friendly deal.”
Credit rating companies may classify the restructuring as a default even if bondholders give their backing. Standard & Poor’s cut Mozambique to CC, 10 levels below investment grade, from B- on Tuesday. It may lower the country further to selective default “if we believe the offer is distressed, rather than purely opportunistic,” it said in a statement that day.
Moody’s also downgraded the south-east African nation on Tuesday to B3, four levels above S&P’s rating. Fitch Ratings Ltd., which rates Mozambique B, said on March 11 the offer may “constitute a distressed debt exchange.”
Fitch may publish a statement on Thursday’s offer after markets close today. S&P is “watching whether existing bondholders will accept the deal,” Ravi Bhatia, director of sovereign ratings, said in an e-mailed response to questions.
“The ratings agencies should upgrade Mozambique probably in the not-too-distant future, because we believe it’s definitely not a distressed exchange,” Luc D’Hooge, head of emerging-market bonds at Zurich-based Vontobel Asset Management, the seventh biggest owner of Ematum’s bonds, said by phone. He will accept the offer by the early deadline. “Gas exports can really change the country. It’s still very poor, but it has great potential, if they manage their gas reserves well. By 2023 they should be in a much better position.”