A group of key Mozambique bondholders laid down terms to the embattled government ahead of restructuring talks, calling on it to revoke guarantees on loans taken on by two state-owned companies.
The southern African nation, which defaulted on its only Eurobond in January, should also liquidate the two firms — ProIndicus and Mozambique Asset Management — as well as a third, the tuna-fishing company known as Ematum, the so-called Global Group of Mozambique Bondholders said.
It was the first response from bondholders to an audit of Mozambique’s debts by Kroll LLC, commissioned by the country’s attorney general and released on June 24. The corporate investigations firm said the three companies failed to account for about a quarter of $2 billion of state-backed loans that they took on in the past five years.
“It is evident that there is no basis — in either Mozambican or English law — for the Mozambique government to honor the purported guarantees of the Proindicus and MAM loans,” the bondholders’ statement read. “Disavowal of those purported guarantees and the liquidation of Proindicus, MAM, and Ematum is the appropriate restructuring that needs to take place to clean up the system, to insulate the government balance sheet from further liabilities, and to restore access to external financing at the lowest cost to Mozambique.”
Antonio do Rosario, chief executive of the three companies, didn’t immediately respond to an email requesting comment.
GGMB, which is advised by former International Monetary Fund official Charles Blitzer, was set up last year by investors holding the bulk of the bonds, including Franklin Templeton and New York-based hedge funds Greylock Capital Management LLC and NWI Management LP. Some of its members have since changed.
The group refused to start formal restructuring talks with Mozambique and its adviser, Lazard Ltd., until the audit was published and they’d seen an outline of a new bailout program between the government and IMF. The Washington-based lender halted funding to Mozambique last year when it discovered the existence of the ProIndicus and MAM loans, which the government had kept secret.
The $727 million Eurobond, due in Jan. 2023, has rallied from a low of 55 cents on the dollar in mid-January to 73 cents. Sentiment toward the country has improved thanks to a 19 percent rise in the metical against the dollar this year, making Mozambique’s foreign debts cheaper to service, and an increase in coal exports. Investors said they were also encouraged by an Eni SpA-led consortium signing off on a $7 billion gas project last month.
These developments have improved Mozambique’s capacity to pay down its debts over the next five years by $850 million, the bondholders said.
“The combination of the improved economic trajectory and an appropriate response to the findings of the Kroll report provides a path for Mozambique to re-establish credibility in the international financial markets,” they said.
The IMF is sending a team to Mozambique next month to discuss the Kroll report and assess the economy. It said the probe was an “important step toward greater transparency regarding the loans” but it noted the “information gaps.”