Holders of bonds issued by Mozambique’s state-run tuna-fishing company Ematum said on Thursday a proposed debt swap offer by the government looked “fair”, raising the likelihood of a friendly exchange.
Mozambique is offering to swap an outstanding $697 million of dollar-bonds issued by Ematum, which mature in 2020 and have a coupon of 6.305 percent, for a new sovereign issue maturing in January 2023, priced at 80 percent and holding a coupon of 10.5 percent, according to exchange terms document.
However, holders agreeing to the exchange before March 23 will get an exchange ratio of 105 percent for their bonds, effectively bringing the coupon to well above 11 percent.
“It is a good deal for the investors and it is a good deal for Mozambique – to me it looks very fair,” said Luc D’hooge, Head of Emerging Market Bonds at Vontobel Asset Management, who plans to accept the offer.
Those accepting after March 23 but before the final consent deadline on March 29 will get an exchange rate of 100 percent.
Dubbed the tuna bond, the original $850 million amortising bond was issued in 2013 and presented as funding for “tuna fishing and related infrastructure”, though it quickly became apparent that much of the cash was for maritime surveillance and security.
At the time, governments across Africa rushed to capital markets to take advantage of rock-bottom global borrowing costs and investors’ hunger for yield. Since then issuance has dried up as investors have become wary and demand higher risk premia.
“They did not want to print an 11 percent coupon as it would be the highest African coupon of all,” said one fund manager who is holding the bond and also plans to accept the offer.
“I think the deal will be accepted as it is a friendly deal, bonds trade still way higher than last week.”
Ematum bonds, which traded in the low 70s cents to the dollar in late February, have rallied in recent days in the run up to the debt swap offer. On Thursday, the bonds rose again and are now trading in the mid-80s cents.
The new bullet structure eliminated amortisation payments in coming years for the government, said Samir Gadio, Head of Africa Strategy FICC Research at Standard Chartered Bank.
“Even so, issuing a bond at such levels will make it challenging to tap external capital markets in the future,” he added.
The bond should also be eligible for inclusion in JPMorgan’s Government Bond Index (GBI-EM) – the most commonly used hard-currency emerging debt benchmark.