Bloomberg: Talks to Restructure $850 Million ‘Tuna’ Bond Rattle Mozambique

A government-appointed bank in Mozambique started talks to reorganize $850 million of debt issued by a state-owned fishing company, sending the bonds into a tailspin and the nation’s currency to a record low.

“If we manage to extend the debt, the longer we can extend it, the better,” Finance and Economy Ministry spokesman Rogerio Nkomo said in an interview in the capital, Maputo, on Monday. “If we can lower the interest rate, it’s better. We have to negotiate first.”

Banco Nacional de Investimento has begun discussions with investors to lengthen the maturity and reduce interest charges on the notes, issued two years ago at a semi-annual coupon of 6.305 percent, he said.

Mozambique’s Finance and Economy Minister Adriano Maleiane said in June the southern Africa nation wants to extend the repayment period and negotiate lower interest rates on the debt.  Empresa Mocambicana de Atum SA, or Ematum, tapped the international capital markets in 2013 to finance a fleet of fishing boats. The funds were also used to pay for patrol vessels, leading the government to take $500 million onto its own balance sheet as defense spending.

Yields on the securities due September 2020 rose 5 basis points to 10.01 percent as of 3:25 p.m. in London, after climbing 10 basis points on Monday. The rate has jumped 304 basis points this year.

The country’s currency, the metical, dropped as much as 21 percent to an all-time low of 57.50 per dollar, before paring losses to trade 16 percent down at 53.80. It has depreciated 39 percent this year, the biggest decline among 24 African currencies tracked by Bloomberg after Zambia’s kwacha.

“We see not a single reason for a Mozambique bond restructuring,” Lutz Roehmeyer, who oversees about 1 billion euros ($1.1 billion) in emerging-market debt, including the so-called tuna bonds, as director of fund management at Landesbank Berlin Investment GmbH, said in an e-mailed response to questions. He bought the debt in August, believing a restructuring was unlikely, with the yields too attractive to ignore.

“They should honor their commitments,” Roehmeyer said. “Debt levels of the country are not unsustainably high to justify any need for a debt operation.”

Credit Downgrades

Standard & Poor’s, which in July downgraded the country’s debt one step to B- with a negative outlook, has said any changes to Ematum’s securities would amount to a default. Fitch Ratings predicts the country’s debt-to-gross-domestic-product ratio will soar to a decade high of 62 percent by the end of this year, from 38 percent in 2011. In August, Moody’s Investors Service cut Mozambique’s rating to B2 from B1, citing its deteriorating fiscal and debt metrics.

“A downgrade is more likely over the short-to-medium term following the developments pertaining to the Ematum situation,” Hanns Spangenberg, a fixed-income analyst at NKC Independent Economists in Paarl, South Africa, said in an e-mailed note. “Additional factors that could warrant a ratings downgrade include a sustained faltering of economic growth, ill-advised fiscal expenditures beyond the advice of international agencies like the International Monetary Fund and the World Bank, or further sharp depreciation of the metical.”

President Filipe Nyusi’s government is struggling to cope with a decline in prices for commodities such as coal and gas that is weighing on economic growth, while the weakening currency is adding to the costs of servicing the debt. He also needs to end renewed hostilities between security forces and armed opposition party militants that have claimed scores of lives over the past six months.

“Ultimately this government remains unlikely to renege on its guarantee or miss a coupon payment,” Mark Rosenberg, an Africa director at Eurasia Group in New York, said in an e-mailed response to questions. “But the combination of low capacity and difficult ruling party politics will continue to undermine the government’s communication with the market and the pace of any reorganization.”

The government, which planned for the payments in its budget, can accept or reject BNI’s recommendations for changing the terms of the debt, Nkomo said. BNI is talking to investors because it can’t make any changes to the debt terms without them, Abdul Jivane, an executive board member of the Maputo-based lender, said by phone on Monday. It may not be done with its recommendations by the end of this month as initially planned, he said.

“It’s not an easy transaction, its a very complex deal,” he said. “We are working on the process, its an ongoing project.”

Source: Bloomberg