Mozambique Commits to Repay Debt Used in Public Interest

  • Eurobond yields rose to record high of 17.4 percent on Tuesday
  • Government wants asset sales by state-owned MAM, Proindicus

Mozambique vowed to honor what it said were illegal debt contracts to state-owned companies even as it aims to only repay loans that have benefited the public interest. Yields on the nation’s Eurobonds fell for the first time in four days.

Prime Minister Carlos do Rosario, acknowledging that it seemed “attractive” to default on some payments, told lawmakers on Wednesday that the “good image of the country among international creditors” would be hurt if the government failed to honor its guarantees. 

Not honoring obligations “would have very negative consequences for the economy,” he said in the capital, Maputo.

Mozambique is struggling under a mountain of debt which has destabilized government operations, owing foreign creditors as much as $9.85 billion. Do Rosario confirmed in his speech that state-owned Mozambique Asset Management, or MAM, had missed a $178 million interest payment due May 23 on a $535 million loan from Russia’s VTB Bank PJSC. It was the first time a government official spoke publicly about the issue.

MAM and another state-owned company, Proindicus, hold loans of $1.6 billion, according to Finance Minister Adriano Maleaine. The government of the coal-producing nation failed to disclose the debt to investors when in April it converted another loan to Ematum, a tuna-fishing company, into a $727 million sovereign Eurobond.

Yields on the Eurobonds, which mature in January 2023, fell 43 basis points to 16.96 by 3:18 p.m. in London, the first drop in four sessions, after closing at a record high on Tuesday. They’re still the highest-yielding sovereign dollar-bonds after Venezuela’s, according to Bloomberg indexes.

“According to MAM managers, they are still in negotiations with the bank,” Maleaine told lawmakers. “The government recommended the companies to find solutions to avoid transforming their debt into sovereign debt.”

VTB transferred $485 million of MAM’s loan to other investors active in the region, according to the lender’s press service.

“We are actively working with the government of Mozambique to rectify the situation and so far do not expect a deterioration,” according to a VTB statement.

Greater Transparency

The nation’s attorney general will investigate whether the secret debt was illegal, Rosario said, adding that MAM and Proindicus may have to sell assets to avoid forcing the nation to meet their obligations.

Mozambique will also work with parliament to change the laws to allow greater transparency in how state-owned companies are run, while a tribunal would track their accounts, he said. An International Monetary Fund team will visit the country in the second half of June to assess the extent of its debt, Rosario said.

The nation, which is trying to develop gas fields that the government believes may make it the third-biggest exporter of liquefied natural gas, owes foreign investors $9.84 billion and has a domestic debt of $1.8 billion.

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