A Year Since Mozambique's Shocker, Bond Talks Head NowhereBy and
Murky state loans mean IMF wary of giving bailout, Exotix says
Bondholder group says Mozambique has means to pay them back
A year after Mozambique stunned investors by announcing a debt restructuring, talks with bondholders and the International Monetary Fund have led nowhere.
The gas-rich southern African nation has yet to start formal discussions, either with the investors who bought its $727 million of Eurobonds -- which the government defaulted on in January -- or the banks that provided about $1.4 billion of loans to two state companies. At least one local analyst who’s worked on previous sovereign restructurings in Africa says talks might not start until 2020.
The impasse comes as bondholders wait for Mozambique to start negotiations with the IMF for a bailout program. Exotix Capital says the IMF probably won’t budge, though, until the government comes clean about the state-guaranteed loans, which were taken on in secret in 2013 and 2014 and have partially gone missing, according to an independent audit.
“We’re in this state of quasi-suspension,” said Stuart Culverhouse, the head of sovereign research at Exotix in London, who met IMF officials this month at the lender’s Annual Meetings in Washington. “Nothing has been able to move forward. The IMF wants to help the country. But it can’t just reward bad behavior.”
Mozambique had hoped to reach a restructuring agreement by January this year and wanted to negotiate with private creditors as one group, whether they owned the bonds or the loans made to ProIndicus, a security company, and Mozambique Asset Management. But the bondholders insisted that they be treated differently and that the only instruments to get haircuts should be the loans, given that their legality has been questioned by Mozambique’s attorney-general.
Twelve months on, their stance hasn’t changed. They believe the country, one of the world’s 10 poorest, will have the means to pay them back once its 5-year plan to export liquefied natural gas gets underway.
Mozambique’s finances have been bolstered since the default by higher prices for coal and aluminum exports. That, along with tight monetary policy that’s enticing yield hunters, has made the metical the world’s second-best performing currency this year and lessened the burden of the government’s external debts.
The sovereign debt restructuring “has proved to be unworkable” because the government “sought to bundle the legitimate claims of the Eurobond holders together with the evidently suspect claims against certain state-sponsored companies,” the so-called Global Group of Mozambique Bondholders said in a statement on Wednesday. “Mozambique is clearly not in medium-term debt distress.”
GGMB was set up last year by investors holding the bulk of the bonds, including Franklin Templeton and New York-based hedge funds Greylock Capital Management LLC and NWI Management LP.
The securities, due in 2023, have been among the best performing sovereign notes in emerging markets this year, with their price rallying 29 percent. They fell 0.4 cents to 76.4 cents on the dollar as of 2:28 p.m. in London, up from a low of 50 shortly before the default.
Neither the finance ministry nor its advisers -- Lazard Ltd. and law firm White & Case -- responded to emails seeking comment.
The Whole Truth
Bond investors want to know “the full and true financial picture of the country,’’ said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment GmbH, which oversees $14 billion of assets, including Mozambican debt. “How can one decide anything without full knowledge of the debt figures? But the bonds have traded up so the bondholders are happy. They see a bright future for the country after it cures its defaults.’’
He thinks a restructuring will happen over six to 12 months. Roberto Tibana, the founder of Analitica-RJT, a macroeconomic consultancy based in Maputo, the capital, is less optimistic.
Tibana, who advised Liberia on its restructuring a decade ago, doubts Mozambique’s ruling Frelimo party will divulge more information on the state loans before general elections in late 2019. President Filipe Nyusi, who has vowed to punish those implicated in the audit done by New York-based Kroll, was defense minister when they were issued.
“This is the same regime that created the problem,’’ Tibana said. “Frelimo believes that the issue will die with time, donors will forget, and sooner or later everyone will be back to business. All in all, I see restructuring discussions being initiated no earlier than 2020.’’
However long it takes, Culverhouse of Exotix says the bondholders may have to take greater losses than the current price of the securities suggests. He thinks Mozambique will eventually restructure all its foreign commercial debts together -- without giving the Eurobond holders special treatment -- and that the recovery value may be barely above 50 percent.
“My feeling is that the process will be very long and convoluted and that the loans and bonds will be wrapped up together, implying lower recoveries on all of them,’’ he said.