Mozambique Debt Probe Sees $500 Million in Unexplained Loans

Mozambican state companies have failed to account for about a quarter of the proceeds of $2 billion in loans being investigated, according to a report by Kroll LLC that creditors said was needed for debt restructuring talks to start.

“At least $500 million of expenditure of a potentially sensitive nature remains unaudited and unexplained,” Kroll said in the report, commissioned last year by Mozambique’s attorney general. Credit Suisse Group AG and VTB Bank PJSC were paid almost $200 million in fees for arranging the loans, the New York-based investigator said.

The International Monetary Fund, which has said the probe was necessary for it to resume funding to the country, noted “information gaps” on how the money was used but otherwise welcomed the release of the audit. “These documents constitute an important step toward greater transparency regarding the loans,” it said in a statement Saturday.

The summary of the audit into three government loans could help pave the way for restructuring talks with owners of the debt and mend relations with the IMF. The fund halted payments to the world’s ninth-poorest nation in April last year, when the government revealed it guaranteed two previously hidden loans by state-owned companies totaling more than $1 billion.

VTB won’t comment on the Kroll audit until the Moscow-based lender has completed a detailed review of the report, according to a statement from the press office. Credit Suisse declined to comment.

Boats, Aircraft

The 67-page document dubbed “Project Montague” also raised questions about the pricing of the assets that two of the Mozambican state-owned companies bought from Privinvest, which was the main contractor for the projects the loans funded. An independent expert Kroll hired to price boats and aircraft under the contracts valued them at $505 million, while ProIndicus and Ematum were invoiced for $1.2 billion.

Privinvest welcomed the release of the audit report, saying it showed the company cooperated, a spokesman said in an emailed statement Sunday. The company disputed Kroll’s pricing, saying that the Mozambican companies’ prices were “comparable to those charged to our other customers.”

Attorney-General Beatriz Buchili received the thrice-delayed report from Kroll last month, and planned to review it before announcing the findings.

While the three companies, Ematum, ProIndicus and MAM, had been forecast to generate total operating revenues of $2.3 billion by December 2016, their sales are negligible, Kroll said. The firms rely on financial support from the government to make debt repayments, it reported.

An IMF team will visit Mozambique for nine days from July 10 to discuss the results of the probe and reassess the macroeconomic situation, the fund said. It will also talk to government about the budget for next year.

‘Information Gaps’

“The report summary provides useful information on how the loans were contracted and on assets purchased by the companies,” the IMF said. “However, information gaps remain, in particular on the use of the loan proceeds.”

The Finance Ministry announced in October it can’t afford to service its commercial dollar debt, and defaulted on its $727 million Eurobond at the start of the year. It’s also missed payments on two state-guaranteed loans. Arrears for all three loans total about $490 million.

A group of bondholders have said they’ll only start debt restructuring negotiations once the audit is published and they’ve seen the outline of a new economic program between the government and the IMF.

— With assistance by Jake Rudnitsky