Mozambique: Bondholders' Lawyer Makes Misleading Claims About the Ex-Ematum Debt

Maputo — By Paul Fauvet

Maputo, 6 Jun (AIM) - In an attempt to squeeze money out of Mozambique, some of the holders of bonds that were initially issued to the fraudulent company Ematum (Mozambique Tuna Company) are now claiming the ruling by the Constitutional Council, that the Ematum debt and its government guarantee are null and void, does not apply to them.

Thomas Laryea, a legal representative of the ex-Ematum bondholders, cited by the Portuguese news agency Lusa, alleged that the Ematum bonds, issued in 2013, have nothing to do with the sovereign bonds they were swapped for in 2016.

"This ruling concerns the government's guarantee of the financing of Ematum. This guarantee expired in April 2016 and does not involve any part of the Eurobonds," Thomas Laryea said.

He claimed the 2016 Eurobonds were "a new obligation". This debt "was publicly approved by the Mozambican parliament, according to the Constitution of Mozambique and within the limits of the Budget Law," he added.

This is simply untrue. AIM was present at all sessions of the Mozambican parliament, the Assembly of the Republic, during the period in question, and at no time did the Assembly discuss, let alone approve the Eurobonds, or put financing them into the budget. Lest our reporter's memory prove faulty, AIM sought confirmation from a member of the Assembly's governing board, its Standing Commission, who confirmed that parliament had never voted on the Eurobonds and had never put them into the budget.

The original Ematum bonds were swapped for the Eurobonds under a deal signed in April 2016 between the government and the two banks which had arranged the original loan issue, Credit Suisse and VTB or Russia. The great majority of the bondholders - 81.5 per cent - had agreed to the swap.

The bonds issued in 2013, were for 850 million US dollars. The stated purpose behind raising these funds was to purchase, from a shipyard in the French port of Cherbourg, 30 vessels - 24 tuna fishing boats, and six modern military speedboats for maritime and coastal protection duty.

The repayment terms were extremely tough - the money was to be repaid over seven years, with a two year grace period, and at an interest rate of LIBOR (London Inter-Bank Offered Rate) plus 6.5 per cent.

The 2016 proposal accepted by the bondholders was that the EMATUM bonds (now down to 697 million dollars, after the first repayments) would be swapped for government bonds for 585.5 million dollars that mature in 2023. The interest rate, however, shot up to 10.5 per cent.

The deal was not put before parliament, and when the government spokesperson of the time, Deputy Health Minister Mouzinho Saide announced the deal, he did not even suggest that there should be a parliamentary vote.

It was also crystal clear that the new bonds were just the Ematum bonds under a different name. They did not buy any new assets, and merely extended the repayment time available to the government.

But within weeks this agreement had collapsed. The other two loans made to equally fraudulent companies, Proindicus and MAM (Mozambique Asset Management), became public knowledge in mid-April 2016, precipitating an enormous financial crisis. The International Monetary Fund (IMF) accused the government of concealing the true state of the country's foreign debt - the guarantees for the Ematum, Proindicus and MAM loans added 20 per cent to the Mozambican debt.

The IMF suspended its programme with Mozambique and other western partners followed suit, including the 14 donors who provided direct support to the state budget.

The Mozambican government declared it was quite impossible to repay the ex-Ematum bondholders, or the Proindicus and MAM loans - and urged further restructuring of the debt. Negotiations have been going on ever since, and last week an agreement was reached with bondholders representing 60 per cent of the ex-Ematum bonds.

This agreement said the bondholders will be invited to exchange their existing bonds for new bonds, for 900 million US dollars, with an accrual date of 15 July this year, and maturing on 15 September 2031. Annual interest will be five per cent up until 1 September 2023, and an extraordinary nine per cent from 2023 to 2031. The capital will be paid in eight equal six monthly instalments of 112.5 million dollars on 15 March and 15 September of the years 2028, 2029, 2030 and 2031.

That agreement has been killed by the Constitutional Council ruling, which stated categorically that "acts inherent to the loan contracted by Ematum and the respective sovereign guarantee confirmed by the government are null and void".

The negotiation of the Eurobonds in 2016 is clearly an "act inherent to the loan", and must be covered by the Council's ruling.

If the creditors want their money back, they should demand it from the people behind the Ematum fraud - who are corrupt former managers at Credit Suisse, certain Mozambican officials in the government of then President Armando Guebuza, notably Finance Minister Manuel Chang, who signed the illicit guarantees, and the Abu Dhabi based company, Privinvest, which provided vastly overpriced boats for Ematum.

Those who orchestrated the fraud also organised the 2016 swap of the Ematum bonds for the Eurobonds. In its indictment of Chang and key Privinvest and Credit Suisse officials, the US justice authorities said the idea for the bond swap came, not from any Mozambican authority, but from the conspirators, including Privinvest salesman Jean Boustani (currently awaiting trial in New York), and two of the Credit Suisse managers, Andrew Pearse and Detelvina Subeva.

The purpose of the loan swap was "to hide from the public and the IMF the near bankruptcy of the project companies, resulting from loan proceeds being diverted as part of the fraudulent scheme".

Although there was a new government in Maputo, and Chang was no longer finance minister, Mozambican officials did not smell a rat. They hired the same banks, Credit Suisse and VTB, to conduct the bond exchange. The adviser for the exchange was Palomar, a Privinvest subsidiary - and by now Pearse and Subeva had moved seamlessly from Credit Suisse to Palomar.

The Constitutional Council is expected to follow its ruling on the ex-Ematum bonds with one on the Proindicus and MAM debts. All three debts and their illicit government guarantees fall foul of the Mozambican budget law and the Constitution. To be consistent, the Council is likely to declare the Proindicus and MAM debts null and void too.

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