17 October 2018

Mozambique: Government Rejects Debt Restructuring Proposal

Maputo — The Mozambican government has rejected a debt restructuring plan submitted by creditors, including Credit Suisse, one of the banks that provided illicit loans to thee security-related Mozambican companies in 2013 and 2014, according to a report by the Bloomberg agency.

The companies concerned are Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management). All are effectively bankrupt and are quite unable to repay the over two billion dollars lent by Credit Suisse and VTB of Russia.

There was never any due diligence of the three companies, which had only just been created and so had no record whatsoever. But the banks assumed they were onto a good thing, since the Mozambican government of the time, then under President Armando Guebuza, guaranteed the loans.

In doing so the Guebuza government broke the budget laws of both 2013 and 2014, by smashing through the ceiling the law set on loan guarantees. It also violated the Mozambican constitution which says that such debt can only be authorised by the country's parliament, the Assembly of the Republic.

Since mid-2016, the government has been defaulting on the three loans, arguing that it is impossible to repay them under current conditions, and so they must be restructured. Mozambican civil society organisations, however, argue that since the loans were illegal, and serve no useful purpose, there should be no repayment at all.

The restructuring proposed by Credit Suisse concerns the loan to Proindicus (for 622 million dollars). Details are scarce, but the proposal would swap the loan into new debt with interest payments tied to Mozambique's future economic performance.

But the proposal has been flatly rejected. One of the companies advising the government, Lazard Freres SAS, in an emailed statement said "The proposal from the ProIndicus lenders has been considered by the Mozambique authorities and their advisers. However, as the lenders have been advised, the proposal does not meet the requirements of the authorities and is not considered a viable basis for a solution."

A second proposal on the table is from the holders of the bonds which Credit Suisse and VTB issued in order to raise the 850 million dollar loan for Ematum.

In 2016, the Ematum bonds were swapped for government sovereign bonds which were supposed to mature in 2023. The government has been defaulting on the interest payments on these bonds, and has repeatedly explained to the bondholders that its economic situation is so parlous that it cannot possibly meet the interest payment schedule.

A group representing a majority of the bondholders presented a restructuring proposal for those instruments to the government earlier this year. Under the plan, bondholders would get access to government revenue from the multibillion-dollar gas projects in the far north of the country (which will not come on stream until 2022 at the earliest)

Lazard Freres has not said whether the government has accepted or rejected this proposal and the bondholders' legal adviser declined to comment to Bloomberg.

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