Maputo declares a state of debt distress

MOZAMBIQUE‘S bonds tumbled after it stunned investors by declaring a state of debt distress.

The country would need to restructure its debts with the hope that the International Monetary Fund (IMF) would resume aid, according to a presentation posted on the Finance Ministry’s website this week.

President Filipe Nyusi’s government this year restructured more than $800 million (R11 billion) in loans it received for a fleet of tuna-fishing vessels, repackaging the debt as $727m of eurobonds. To restructure the securities, it would have to convince investors, such as Lutz Roehmeyer, who bought about $1m worth of tuna bonds, who believe they were tricked.

“It’s their fault, not the fault of the bondholders, and I don’t have any mercy for the officials,” said Roehmeyer from Landesbank Berlin Investment.

He said he began buying tuna bonds when the ratio of debt-to-gross domestic product (GDP) appeared to be low. “Now we know why, because they were fake.”

Mozambique was counting on one of the biggest gas discoveries in decades to power an economic boom. But the combination of excess borrowing at a time of depressed commodity prices and plunging foreign investment arrested growth in the country.

The country’s debt ratio would reach almost 113 percent of GDP this year after $1.4bn in previously undisclosed loans were uncovered in April, the IMF said. In its presentation, the finance ministry took an even grimmer view, putting it at 130 percent of GDP.

Yields on the bonds, due in 2023, jumped as much as 583 basis points on Tuesday to a record 21.11 percent in Maputo.

“The debt-sustainability situation in Mozambique is completely dire,” said Robert Besseling, the executive director at Exx Africa.

In an effort to get a lifeline from the IMF, Mozambique appointed Lazard Frères and White & Case to start talks with creditors “in coming days”, it said. Aiming to conclude a deal with the IMF by early next year, the government planned to reach an in-principle agreement with creditors on a “debt-resolution proposal” in December, and implement the restructuring in January, the ministry said.

“I don’t think it’s a realistic timeline,” Besseling said. “Just given the deterioration in the financial and economic situation, it is unlikely that any of this debt will be restructured in that timeline.”

Mozambique outlined how it was relying on gas revenue to help pay back the debt. But those fields would not start to generate royalties and taxes until 2021. A coupon payment of $38m was due in January, while the country’s repayment capacity next year was $25m.

The government told creditors that Eni was expected to make its final decision on the $8bn Coral floating liquefied natural gas project at the end of this year, while Anadarko Petroleum could decide next year on a $12bn onshore project to export the fuel. If there are no delays, those projects would “significantly increase” payment capacity and boost government revenue by an average $2bn a year between 2021 and 2025, the document showed.

The IMF predicted Mozambique would run a current account deficit of 146 percent of GDP by 2021, compared with 33.5 percent this year.

That would be the highest, by far, in the world.