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Mozambique in hot water over undisclosed borrowing

The failure of Mozambique to declare a substantial amount of borrowing has overshadowed the successful EMATUM restructuring and threatens the country’s ability to access foreign financial support on which it heavily relies.

Apr 25, 2016 // 5:50PM

It has emerged that Mozambique did not declare up to US$1.35bn of sovereign borrowing. This is in addition to the US$850mn worth of ‘tuna bonds’ that the sovereign recently restructured.

“The consequences for the sovereign could be quite severe, as the unpaid loans are non-concessional, and so come with a high yield,” said Joe Delvaux, Senior Fund Manager – Duet Africa Credit Fund at Duet Asset Management.

The country’s foreign debt now stands at US$9.64bn or 77% of GDP, which is considered as being very close to unsustainable.

“The country already has a high debt burden, and having to service the high yields on the non-concessional loans could push the sovereign’s external debt levels to 80% of GDP,” Delvaux noted.

He also added that due to the country’s debt situation it was likely that there could soon be a rating action.

Delvaux stated that the sovereign’s Eurobonds have already repriced as a result, with yields reaching around 14.5%.

Mozambique’s currency, the metical, fell 40% against the US dollar last year; it currently stands at 49.2500 to the dollar. The weakened currency makes it harder to repay foreign currency denominated debts.

The country’s fiscal position is worsening. Although it has large gas reserves, Delvaux noted that the commodity downturn has hit Mozambique at exactly the wrong time.

As a result, foreign investment is likely to be rare. Delvaux added that the revelations would have an impact on foreign direct investment (FDI) in Mozambique, which is already critical for the nation’s financing requirements.

Furthermore, the IMF has suspended lending to the country, including the next US$55mn tranche of a US$283mn rescue loan package.  

Delvaux stated that although the sovereign is now cleaning up its act, trust amongst investors would likely have been damaged. “First EMATUM, now this, what next,” he said, adding that Mozambique would likely be excluded from the Eurobond market for a while.


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