Mozambique Reluctant to Take Over MAM’s Debt, Official Says

  • State-owned company had May 23 deadline to pay $178 million
  • Fitch cut nation’s credit rating by one level to CC from CCC

Mozambique is unwilling to convert a loan extended to a state-owned company into sovereign debt to avoid a default, according to an official familiar with the situation, who asked not to be identified because he’s not authorized to speak on the matter.

Talks between the government and creditors to restructure the $535 million loan to Mozambique Asset Management, or MAM, were still going on, the official said from the capital, Maputo.

Mozambique’s government in April owned up to the existence of $1.4 billion of undisclosed borrowing by the Interior Ministry and state-owned security companies Proindicus and MAM. While Proindicus made a $24 million interest payment on its $622 million facility on March 21, Finance Minister Adriano Afonso Maleiane said last week MAM won’t be able to honor its $178-million interest payment that was due on Monday.

Mozambique’s council of ministers didn’t discuss the repayment of MAM’s credit at a meeting on Tuesday, Deputy Health Minister Mouzinho Saide told reporters in the capital, Maputo. “This was not part of the agenda,” he said.

Fitch Ratings cut Mozambique’s credit rating by one level to CC on Monday, saying disclosure of the new debt revealed significant short-term repayment obligations.

The government is in negotiations with VTB Bank of Russia to restructure the loan, according to Charlotte King, a London-based analyst at the Economist Intelligence Unit.

“Presumably it will have some form of grace period,” King said in e-mailed comments. “Therefore, it’s unlikely that they are in ‘official’ default. However, the metical is trading at all-time lows and the government’s ability to make the payment is far from guaranteed.”

Investors’ Concern

The metical was down 0.5 percent against the dollar by 3:17 p.m. in Maputo, bringing this year’s losses to 14.3 percent and adding on to a 32 percent slide last year. The yields on Mozambique’s $726 million of bonds due January 2023 rose 27 basis points to 16.61 percent on Tuesday. They closed at a record high of 17.12 percent on May 19, according to data compiled by Bloomberg.

Since the discovery of the undeclared loans by the International Monetary Fund, European nations and multilateral lenders have withheld funding, while other rating companies have also downgraded Mozambique’s credit.

Higher debt commitments, rising arrears in public-sector spending such as salaries, low foreign reserve holdings, delays in natural gas development and almost no foreign assistance have increased Mozambique’s debt default risk substantially, according to Thea Fourie, a senior economist at IHS Global Insight in Pretoria, South Africa.

“The current inability of the Mozambican government to handle the crisis adds to investors’ concerns and confidence,” Fourie said in e-mailed comments.

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