Mozambique’s Eurobonds slumped for a second day after the government surprised investors by hiring advisers to negotiate a restructuring just seven months after issuing the debt.

The $727 million security has fallen 21 cents on the dollar to 60 cents since the African nation revealed on Tuesday it hired Lazard Ltd. and White & Case LLP to oversee meetings with creditors to change terms on its debt to qualify for a resumption of IMF aid. Mozambique’s external burden amounts to $10.1 billion, including $1.73 billion of liabilities to commercial creditors, according to a presentation posted on the Finance Ministry’s website.

The African nation, which is struggling to service dollar-denominated debt after its currency suffered the second-biggest depreciation worldwide this year, said it’s in breach of five debt-burden indicators at the International Monetary Fund. The revamp means investors who in March agreed to exchange $697 million of bonds issued by a state-owned tuna-fishing company for the longer-dated sovereign debt may need to accept a writedown or new maturities.

“They couldn’t keep their budget under control, and it’s their fault, not the fault of the bondholders, and I don’t have any mercy for the officials,” said Lutz Roehmeyer, who helps oversee about $12 billion in assets at Landesbank Berlin Investment and who bought about $1 million worth of tuna bonds in 2014 and 2015. Investors were “misled” about the size of the country’s debt burden earlier this year, he said.

Prime Minister Carlos do Rosario told lawmakers Wednesday the country was also negotiating with creditors to restructure debt of state-owned Mozambique Asset Management and Proindicus, a security company set up to protect the nation’s water resources. The government seeks to hire an independent international auditor to probe the nation’s external burden, he said.

Yields on the sovereign’s 2023 securities climbed 1.9 percentage points to 22.77 percent by 10:42 a.m. in Maputo, compared with 15.24 percent the day before the government presentation said talks with creditors would start “in the coming days.”

Sliding Currency

The government wants to secure a financing agreement with the IMF by early 2017, which means it needs to reach an agreement in principal with creditors “on a debt-resolution proposal” by December, it said. The IMF is ready to assist Mozambique in its discussions with creditors, country representative for the Washington-based fund Ari Aisen said on Wednesday.

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 have arrested growth in the southern African country. Its currency has weakened 38 percent this year, the most globally after Suriname’s dollar.

“The local-currency depreciation has exacerbated the increase of the debt stock and its servicing costs,” said the government, projecting the ratio of external debt to gross domestic product will exceed 100 percent in 2017. Mozambique will need to pay about 6.9 percent of GDP per year through 2021 to cover interest costs, according to the presentation.

‘Completely Dire’

Of the total debt burden, 80 percent is owed to multilateral and bilateral creditors. The restructuring in March involved repackaging more than $800 million in loans received for a fleet of tuna-fishing vessels repackaging the debt as $727 million of Eurobonds.

The IMF suspended aid to Mozambique in April after discovering $1.4 billion of previously undisclosed external loans, saying it would resume financial assistance after an independent, international audit. Bilateral donors also halted aid.

“The debt-sustainability situation in Mozambique is completely dire,” said Robert Besseling, the Johannesburg-based executive director at business-risk consultancy Exx Africa, who expects the country will struggle to change terms on its debt by its early 2017 target. “Given the deterioration in the financial and economic situation, it is unlikely that any of this debt will be restructured in that time line.”

Mozambique was relying on gas revenue to help pay back the debt, but those fields won’t start to generate royalties and taxes until 2021, leaving the nation short of money to repay creditors over the next four years, according to the presentation. An interest payment of $38 million is due in January, while the country’s repayment capacity in 2017 is $25 million.

 

The government said it expects Italy’s Eni SpA to make its final investment decision on the $8 billion Coral floating liquefied natural gas project by year-end, while Anadarko Petroleum Corp. of the U.S. could decide in 2017 on a $12 billion onshore project. The projects would “significantly increase” the country’s payment capacity and boost government revenue by an average $2 billion a year between 2021 and 2025, it said.

With exports collapsing and its dependence on imports rising, the IMF predicts Mozambique will run a current-account deficit of 146 percent of GDP by 2021, compared with 33.5 percent this year.

Source: Bloomberg