Bondholders to Mozambique: Go Fish
November 07 2016 - 5:16PM
Dow Jones News
By Matt Wirz, Matina Stevis and Julie Wernau
Investors are preparing to fight Mozambique's plan to
restructure their $726 million of bonds a second time, threatening
a stalemate that could delay the country's access to much-needed
aid.
Bondholders are forming a committee to prepare for a potential
default and say they won't negotiate debt relief now because they
mistrust the government's financial disclosures and want it to seek
relief from other creditors first, according to people familiar
with the matter.
Investors are particularly angry that Mozambique has proposed
restructuring their bonds alongside $1.2 billion of bank loans that
were undisclosed until The Wall Street Journal reported their
existence in April. By that time, most bondholders had already
voted to accept the first restructuring, which converted bonds they
had bought from a state-owned company into sovereign government
debt but delayed repayment for three years.
"The bottom line is bondholders are exasperated," said Charles
Blitzer, a former assistant director of the International Monetary
Fund's monetary and capital markets department who consults for
some Mozambique bondholders.
Mozambique issued the so-called tuna bonds in 2013, purportedly
to build a fishing fleet. Investors later learned that the proceeds
had been redirected to the military.
The country's financial situation worsened after news of the
hidden loans prompted the IMF to suspend aid this spring and to
demand an internationally supervised audit of the previously
undisclosed deals. Bondholders, the IMF and opposition lawmakers in
Mozambique are trying to determine whether the loans were
contracted legally and how the borrowed money was spent.
A standoff with investors could worsen the southern African
nation's sharply declining economic growth and double-digit
inflation.
"We are trying to convey a sense of urgency because we think
it's in everyone's interest to find a quick solution," says Ian
Clark, a lawyer at White & Case LLP who represents Mozambique
in the restructuring talks. "The payment capacity is virtually
nil."
The bonds and loans were arranged by Credit Suisse Group AG and
Russian lender VTB Group. Credit Suisse declined to comment on the
loans. A spokeswoman for VTB said: "Mozambique confirmed to us that
they were following the necessary internal and external legislation
and that comprehensive information on the loans was disclosed to
creditors and investors."
The bondholders committee is expected to include mutual-fund
managers AllianceBernstein Holdings and the London branch of
Franklin Templeton Investments and hedge funds Greylock Capital
Management and NWI Management, the people familiar with the matter
said. Other firms holding the bonds include BlackRock Inc., and
Marathon Asset Management.
Mozambique's financial adviser, Lazard, told bondholders on a
conference call in late October that the nation needs additional
relief by January to re-establish its IMF borrowing program. The
next $38 million interest payment on the bonds falls due in
January.
Bondholders want Mozambique to restructure its bank loans and
bilateral loans owed to foreign governments before restructuring
the bonds again, people familiar with the matter said. The $76
million annual interest expense on the bonds accounts for a
relatively small 9% of Mozambique's total debt service costs over
the next five years, he said.
Mozambique's repeat restructuring highlights the risk banks and
investors took when plowing money into frontier markets during the
commodities boom through 2014.
Lee C. Buchheit, a top sovereign-debt lawyer with Cleary
Gottlieb Steen & Hamilton LLP, recommended Mozambique repudiate
the loans in informal communications with government officials in
May, according to emails reviewed by the Journal. Mr. Buchheit
argued that the government guarantees backing the loans were
illegal and that restructuring the debts would legitimize them.
Mr. Clark, the legal adviser that Mozambique ultimately hired,
said the government guarantees in the loans are enforceable under
U.K. law.
Mozambique's ruling Frelimo party initially resisted the IMF
audit before agreeing in hopes of a resumption of aid. The audit is
being managed by the IMF, Mozambique, and Sweden and will focus on
how money from the loans and bonds was spent, people familiar with
the matter said. Results are expected in the spring, they said.
(END) Dow Jones Newswires
November 07, 2016 18:01 ET (23:01 GMT)
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