africa Banking Capital market Finance Government Mozambique Natural Resources

Mozambique: ENH needs loan of two billion dollars

Approximate reading time: 3 minutes

Mozambique’s National Hydrocarbon Company (ENH) needs to borrow two billion US dollars in order to finance its participation in the Liquefied Natural Gas (LNG) projects in the Rovuma Basin, off the coast of the northern province of Cabo Delgado.

 

ENH has a 10 per cent holding in Offshore Area Four of the Rovuma Basin and 15 per cent in Offshore Area One where the operators are the Italian energy company ENI and the US company Anadarko respectively. At some stage ENH will need money to back up the value of these holdings.

The Minister of Economy and Finance, Adriano Maleiane, interviewed by the independent television station STV, said the government wants to issue a sovereign guarantee for this two billion dollar loan, and has put it into the draft state budget for 2019, which will be debated in the Mozambican parliament, the Assembly of the Republic, in December.

With a government guarantee, ENH will be able to go the international capital markets to seek the loan.

Maleiane said that the banks who will finance the construction of the Rovuma Basin LNG facilities will need guarantees from all the shareholders “so that during the implementation phase there will be no problems”.

However, the return of Mozambique to the capital markets will not be easy. Ratings agencies classify Mozambique as in “selective default”.

This is because, in 2013 and 2014 the government issued sovereign guarantees, also for about two billion dollars, for loans taken out from European banks by three newly created security-related companies – Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Assets Management).

All three companies are now effectively bankrupt, and the government has defaulted on the loan repayments, arguing that the creditors must agree to a restructuring of the loans.

The government guarantees for Ematum, Proindicus and MAM were illegal because they smashed through the ceilings on guarantees laid down in the 2013 and 2014 budget laws, and because they were never discussed in parliament which, under the constitution, is the only body that can authorise such debt.

This time the government is not hiding the guarantees and is submitting them to the Assembly for approval. But will any banks or other agencies be prepared to extend the loan that ENH needs? The defaults on the Ematum, Proindicus and MAM loans may make international lenders wary, and might increase the interest rates they charge.

Asked about the latest proposal from creditors, headed by Credit Suisse, to renegotiate the Proindicus loan (which was for 622 million dollars), Maleiane declined to confirm or deny that the government has rejected the proposal.

But according to a report from the Bloomberg agency, one of the companies advising the government, Lazard Freres SAS, in an emailed statement said “The proposal from the ProIndicus lenders has been considered by the Mozambique authorities and their advisers. However, as the lenders have been advised, the proposal does not meet the requirements of the authorities and is not considered a viable basis for a solution.”

Maleiane simply said “We are still negotiating with the creditors. As I have said before, we hope to close the process by the end of the year. Right now, the government’s technical team wants to find a balance”.

Source: Club Of Mozambique

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