VTB Said to Seek Resolution to Mozambican Interest Payment

  • State-owned company missed interest payment due May 23
  • Mozambique disclosed $1.4 billion of hidden loans last month

VTB Bank PJSC is working with the Mozambican authorities to resolve the failure by a state-owned company to make an interest payment on its loan, a person familiar with the matter said.

The lender, based in Moscow, also expects that in the event of Mozambique Asset Management defaulting on the $178 million payment, the debt will be covered by a government guarantee, the person said, declining to be identified because they aren’t authorized to comment on the matter. MAM, as the state-owned company is known, was scheduled to make the interest payment on the $535 million loan by May 23.

A grace period on the interest payment was scheduled to end late on Thursday and Mozambique was at risk of defaulting on its debt, another person familiar said before the deadline. VTB declined to comment and Mozambican Finance Ministry spokesman Rogerio Nkomo’s phone was switched off when Bloomberg called him seeking comment.

Nkomo, who is also the national budget director, said on Thursday he was in a meeting with Adriano Isaias Ubisse, an adviser to the finance minister, Deputy Finance Minister Maria Isaltina Lucas and other officials.

Default Risk

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 on time 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.

Yields on Mozambique’s $727 million of  Eurobonds due Jan. 2023 were little changed by 11:20 a.m. in London after rising on Thursday to a record 17.13 percent.

“We await the ratings agencies to announce a selective default,” although “legal technicalities” may help the nation avoid this, Merchant Bank’s Johannesburg-based analysts Celeste Fauconnier, Nema Ramkhelawan-Bhana and Neville Mandimika said in an e-mailed note Friday. “The situation is unpredictable and has caused market uncertainty,” driving yields higher, they said.

The Proindicus loan and the 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.

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.

‘Macro Pressure’

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.”

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