Will Mozambique pay or not?
JPMorgan Chase & Co. says the African nation is poised to miss payment on a $60 million coupon next week, but a former International Monetary Fund official who’s advising bondholders insists the government has the money.
“It’s in the interest of Mozambique, as well as the bondholders, for the government to pay the coupon,” Charles Blitzer said in an e-mailed response to questions. “I can’t see any good consequences if it doesn’t. The market has overreacted in spades.”
The country’s $727 million of bonds sank to a record after JPMorgan analysts said the government’s rhetoric implies it’s “highly unlikely” to make the payment on Jan. 18.
Mired in a financial crisis after commodity revenue plummeted and the IMF cut aid, Mozambique said in October it would seek to restructure the Eurobond as well as $1.4 billion of government-guaranteed loans to two state companies. Lazard Freres & Co., which represents Mozambique along with law firm White & Case LLP, said the government would have no money left over for debt payments in 2017, including those on the Eurobond.
That sparked a stand-off with bondholders, who formed a creditor committee to argue their case for preferential treatment over other creditors on the grounds that their state guarantees may be illegal.
“The situation in Mozambique has improved since October,” said Blitzer, who’s advising creditors including Franklin Templeton and AllianceBernstein LP. “In recent months capacity to pay has improved as both the exchange rate and reserves have stabilized and begun to move up.”
The Jan. 2023 bond was little changed at 50.67 cents on the dollar as of 11:54 a.m. in London, with the yield at 27.88 percent. While the government hoped to finalize a restructuring by Jan. 18, it still hasn’t started formal discussions with the bondholders. There’s a 15-day grace period to settle the coupon payment, according to the prospectus.
“There’s nothing on the record to indicate they’ve made a decision to not pay this coupon,” said Blitzer. “There was nothing like that said in the restructuring presentation. The creditor committee remains open to discussions of its views and analysis of various issues, but negotiations could begin only after the various preconditions are in place.”