Mozambique’s government wants two state-owned companies that borrowed $1.16 billion from foreign creditors to find their own way to repay the debts, Prime Minister Carlos do Rosario said.
Solutions could include selling assets, forming partnerships and adjusting their business plans, Do Rosario told lawmakers Thursday in the capital, Maputo. One of the companies, Mozambique Asset Management, missed a $178 million interest payment on its $535 million loan on May 23, raising the prospect of a sovereign debt default.
“The primary responsibility falls on them to assume and pay the debts without overloading the state budget,” he said. “The government reaffirms its commitment to do everything so that the companies assume their responsibilities.”
Mozambique, one of the world’s poorest nations, is struggling to repay its debts as it faces a cash crunch following the collapse in commodity prices. The southern African country is the continent’s biggest producer of coking coal, which is used in steel production, International Energy Agency data show. It owes a total of $11.6 billion to foreign creditors, according to the Finance Ministry.
The loan by MAM, along with $622 million borrowed by state-owned Proindicus, was previously kept hidden by the government before it disclosed them to the International Monetary Fund in April. The funds were provided by VTB Bank PJSC and Credit Suisse Group AG, the IMF said April 15.
Donors including former colonizer, Portugal, the IMF and the World Bank have subsequently frozen funding and demanded the nation make full disclosure on all its debts and obligations. S&P Global Ratings on May 28 lowered Mozambique’s credit assessment to CCC from B. Moody’s Investors Service views the country as already in default.
The government has vacillated on repaying the debts of the state-owned companies. On May 24, an official said the state is unwilling to convert the loan extended to MAM into sovereign debt. On Wednesday, Do Rosario said that while it appeared “attractive” to default on some payments, the country risked damaging its “good image” with foreign creditors if it failed to honor its guarantees.
Yields on the Mozambique’s Eurobonds, which mature in January 2023, rose 5 basis points to 16.975 by 1:59 p.m. in London. That compares with a record high of 17.40% on June 7. They’re still the highest-yielding sovereign dollar-bonds after Venezuela’s, according to Bloomberg indexes.