Mozambique to Finally Restructure Eurobonds by End-September

(Bloomberg) -- Mozambique plans to conclude restructuring its dollar bonds by the end of September, almost three years after first announcing the proposal.

The southeast African nation asked holders of $727 million of debt due 2023 to exchange it for $900 million of notes maturing from 2028 to 2031. That’s mainly because the government expects it will have started earning revenue from Africa’s largest liquefied-natural-gas project, and won’t have difficulty in repaying debts.

Mozambique needs to return to international capital markets to raise funds for its participation in about $50 billion of planned gas projects that companies including Exxon Mobil Corp. plan to develop. Income from the fuel could transform the economy of one of the world’s poorest countries.

“The restructuring of the notes will be an important milestone in Mozambique’s path to improving its relationship with the international financial community,” the government said in a statement Tuesday.

The bonds rose as much as 1.1% Tuesday to a record 103.77 cents on the dollar in London. That’s nearly twice the 55.52 cents low they fell to in January 2017, three months after Mozambique announced it was seeking restructuring for three commercial dollar debts. Confidence in the economy had plunged following the International Monetary Fund’s April 2016 announcement that government had owned up to $1.2 billion in previously undisclosed loans. The Washington-based lender and a group of 14 donors froze funding to the country as a result.

Gas Revenue

Interest rates will increase to 9% from 5% in 2023, when LNG production is expected to begin. Bondholders have until Sept. 6 to agree on the deal, despite a June court ruling that a sovereign guarantee on the loan that was later converted into Eurobonds was illegal, casting doubt on the proposed restructuring.

All members of a core group of bondholders will vote in favor of the proposal. The Global Group of Mozambique’s Bondholders represents about 68% of the debt, it said in an emailed statement Tuesday.

A threshold of 75% acceptance by bondholders is required for the deal to proceed. If successful, the transaction would close a chapter on restructuring of the Eurobonds under a plan that the government first announced in October 2016.

Uncertainty had earlier clouded the restructuring after the U.S. Department of Justice said in a December indictment that the projects the original loan was intended for were a front to pay at least $200 million in bribes to bankers, corporate executives and government officials. About $2 billion of debt was used to finance the projects that involved purchasing a fleet of tuna-fishing boats.

There are still questions around how the government will treat the other two loans, arranged by Credit Suisse Group AG and VTB Capital SA between 2013 and 2014. Mozambique asked a U.K. court to nullify a sovereign guarantee for a $622 million loan to the state’s ProIndicus, and is talking with VTB on how to handle a $535 million state-backed loan to Mozambique Asset Management.

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