Mozambique Bonds Sink Most in Year as Restructuring Plan Snubbed

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(Bloomberg) -- Mozambique’s dollar bonds plummeted, losing the most in more than a year, after a key group of investors rejected restructuring proposals from the government, which said it would struggle to repay principal on its debts for the next decade.

Mozambique first missed coupons on the notes in January last year after donors cut aid and falling commodity prices dented its finances. At a meeting in London yesterday, the government proposed that investors in the Eurobonds and about $1.2 billion of state-guaranteed loans swap their holdings into new instruments with longer maturities and lower coupons, as well as accept some writedowns.

“We doubt bondholders will find this acceptable,” Stuart Culverhouse, London-based chief economist at Exotix Capital, which has a sell recommendation on the debt, said in a note Wednesday. “We estimate the proposal implies a present-value reduction of 45-55 percent. This is much higher than the 30-40 percent we estimated.”

The southern African nation’s $727 million of defaulted securities due in 2023 fell 6.1 percent to 78.1 cents on the dollar by 11 a.m. in London, extending their losses since Mozambique’s restructuring presentation on Tuesday to 8.3 percent. They’re now at their lowest since Nov. 13.

‘Non-Starter’

The Global Group of Mozambique Bondholders, which claims to have the backing of money managers and hedge funds owning more than 80 percent of the Eurobonds, said the government’s plans were a “total non-starter.”

GGMB was created in late 2016, soon after Mozambique said it needed to restructure its external private debts, and included Franklin Templeton and New York-based hedge fund Greylock Capital Management LLC. It will meet Finance Minister Adriano Maleiane and his advisers Lazard Freres SAS and law firm White & Case again on Wednesday in London, Thomas Laryea, the group’s legal adviser, said.

One of the world’s poorest nations, Mozambique came unstuck in 2016 when the International Monetary Fund and other donors suspended financing programs after they found out about the state-guaranteed loans, which the government had kept secret. It was also hit by lower revenue from coal and aluminum exports.

Mozambique said it would treat the bondholders and loan investors on the same basis. The GGMB insists the loans should be subordinated, if not written off, given that the legality of the state guarantees backing them has been questioned by the attorney-general.

The government told investors that “principal amortization” will be “limited” until 2028. Its ability to pay coupons and other interest will be “very low” through 2023, around when it hopes to be exporting liquefied national gas, it said.

Maleiane also wants to write off half Mozambique’s past-due interest payments and any penalties arising from them.

Government Proposal

The government gave holders of the Eurobonds and the loans to state companies ProIndicus and Mozambique Asset Management the following options for the new instruments, each of which would amortize in the final three years:

  • 1: A 16-year security with a coupon of 2 percent for the first five years, stepping up to 6 percent. There would be no haircut
  • 2: A 12-year maturity, a coupon of 1.5 percent for the first five years and one of 5 percent thereafter, and a 10 percent haircut
  • 3: An 8-year note with a 2.8 percent coupon throughout. Investors who choose this option would take a 20 percent writedown
  • Mozambican investors will be offered a local-currency instrument

Arrears on interest and principal have climbed to $636 million, of which $136 million was for the Eurobond, according to the presentation.

“A collaborative process is paramount to ensure Mozambique’s debt sustainability in the medium to long term,” it read.

©2018 Bloomberg L.P.

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