A core group of Mozambique’s international creditors dismissed as a “non-starter” a debt restructuring plan the country presented on Tuesday, balking at the idea of a second painful writedown in as many years.
The group rejected three scenarios for restructuring roughly $2 billion of debt that the finance ministry unveiled in London, and which one bondholder said were a likely prelude to long negotiations.
Shortly after restructuring a Eurobond in 2016, Mozambique’s government admitted to $1.4 billion of previously undisclosed loans, many of which went on upgrading maritime and military security.
The disclosure prompted the International Monetary Fund and foreign donors to cut off support, triggering a currency collapse and leading to a default in what was already one of the world’s poorest countries.
Tuesday’s scenarios, presented 17 months since Maputo said its debt was unsustainable and needed restructuring, included extending maturities on the outstanding defaulted debt to between eight and 16 years and a 50 percent “haircut” – or writedown – on owed interest and penalty payments.
Slides seen by Reuters also had two options with haircuts on the original amounts loaned – the principal – with shorter maturity debt getting hit hardest.
The options were open to all commercial Eurobond and loan holders, with creditors able to chose if they wanted to swap into the new issue in form of a Eurobond or loan again, restructuring advisor Lazard told journalists at a briefing.
The response from the Global Group of Mozambique Bondholders (GGBM), which represents or has the backing of more than 80 percent of those who hold the country’s main Eurobond, was that it was “a non-starter”.
FIRST PAIN, THEN GAIN?
Others who spoke to Reuters on condition of anonymity said they expected this was just a first offer from Mozambique.
They were disappointed that possible bump-up payments were not included, should the country’s economy pick up once long-awaited gas production – expected by late 2022 – begins.
Substantial offshore gas reserves were discovered off Mozambique more than a decade ago. But progress in getting the infrastructure in place to tap them has been glacial.
“Given where their starting point is, I expect we are looking at lengthy negotiations,” one of the bondholders said.
Mozambique’s finance minister told a separate media briefing it would meet creditors again on Wednesday to get feedback on the proposals.
Phillip Blackwood, managing director of bond fund EM Quest, added: “If it is just a question of pain and debt distress in the next five to seven years for Mozambique, then investors would be happy to give them relief.
“But when the (gas) bonanza kicks in, this should be used for poverty reduction as well as compensation to investors who helped them through the crisis.”
It will be at least a decade before the country reaps real benefit from the gas projects, predicted Lazard’s Michele Lamarche, who works on behalf of the government.
“The early years of the gas projects kicking in would be cost recovery, only at the end of the 2020s revenues would kick in,” she told journalists in a second presentation.
During the media briefing, Mozambique said it expected to reach a primary balance in its budget by 2022.