According to sources, Mozambique could be hours away from defaulting on its debt as talks about rescheduling a loan from Russia’s VTB Bank PJSC to a state-owned company failed.
State-owned Mozambique Asset Management (MAM) missed a 23 May 2016 deadline to make a $178m interest payment on its state-guaranteed loan of $535m to creditors. Further, the grace period given to the firm ended on Thursday.
Previously, a government official stated that the government was unwilling to convert the loan extended to MAM into sovereign debt to avoid a default. A failure by MAM to reschedule the loan by the end of the day may trigger a sovereign default by Mozambique on its other obligations, including its $727m Eurobond due in January 2023 and a $622m loan made to state-owned firm Proindicus.
The Proindicus loan and the $535m MAM facility are among the $1.4bn of debt that the Mozambican government had previously kept ‘hidden’ before disclosing their existence to the International Monetary Fund last month.
Proindicus had made a $24m interest payment on its debt on 21 March 2016, but Finance Minister Adriano Afonso Maleiane said last week that MAM would not be able to honor its interest payment.
Separately, Fitch Ratings cut Mozambique’s credit rating by one level to CC this week, saying disclosure of the new debt revealed significant short-term repayment obligations. Moody’s Investors Service views Mozambique as already in default.
Mozambique’s debt installment represents about 10% of its reserves ($1.8bn as on April 2016) if it goes ahead with the interest payment.
The yield on Mozambique’s Eurobond rose 35 basis points to 17.1% in trade in London on 26 May 2016.
Nigeria’s government may plan to issue its first sovereign Islamic bonds (sukuk) in the second half of 2016. The issuance, if finalized, follows similar sovereign issuances from Senegal and Ivory Coast.
The nation set up a multi-agency committee to work out the modalities for the issuance, which includes the Debt Management Office (DMO), Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN) and Infrastructure Concession and Regulatory Agency (ICRA), among others.
Currently, Nigeria had only one sub-national Sukuk bond which was issued by the Osun state government. Two other states, Kebbi and Sokoto states have indicated interests in issuing Sukuk bonds.
The absence of a sovereign Sukuk bond to serve as benchmark for other government and corporate Sukuk issuance has been cited as a drawback for the growth of non-interest Sukuk bond market.
Standard and Poor’s rating services (S&P) estimated that global Sukuk issuance could reach up to $55bn in 2016.
Oil rich Saudi Arabia is raising a $10bn, five year loans, as it battles falling crude oil revenues and reserves. According to bankers close to the deal, the loan has a spread of 120bps over Libor.
The issuance was upsized from $6-8bn to $10bn on stronger investor demand.
The issuance provides the kingdom funds as it has burned about $150bn of foreign reserves since 2014 due to the worst slump in crude oil prices.
Leading lenders HSBC, Bank of Tokyo-Mitsubishi and JP Morgan, pledged about $1.3bn each. Minimum bids for the loan were at $500m to qualify as a participant.
This issuance, a first by the kingdom since 25 years, could prompt further issuances by other neighboring nations such as Abu Dhabi which has mandated banks ahead of its third international bond issuance.
Argentina is finalizing it’s return to capital markets with a proposed $15bn bond issuance, the largest by a developing nation since Mexico’s $20bn issue in 1996.
Proceeds would be firstly be utilized towards paying certain creditors in relation to its default on debt in 2001, with further issuances to focus on fiscal spending and towards boosting reserves.
However, investors are speculating on the interest rate that would be offered on the debt, considering the nation’s history of defaults over the last 200 years.
The issuance would be contingent upon approval from the congress and would commence next month, according to Finance Secretary Luis Caputo.
The proposal comes on the backdrop of Argentina’s $4.6bn settlement agreement with certain creditors in relation the nation’s default on debt in 2001. Certain creditors, including Paul Singer’s Elliot Management, refused to restructure the nation’s debt when it defaulted during 2001.
Talks with HSBC, Citi and JP Morgan have begun in London to arrange the sale.
According to HSBC Holdings plc, nations of the Gulf Cooperation Council (GCC) may face some difficulty in refinancing $94bn worth of debt by 2018, after being impacted by falling crude oil prices, slowing growth, rising rates and rating downgrades.
GCC countries, dominated by United Arab Emirates and Qatar, face $52bn of bonds and $42bn of syndicated loans maturing in the next two years. These countries also have a cumulative fiscal and current account deficit of $395bn over the period. Further, Gulf nations have a total of $610bn of FX-denominated debt and syndicated loans outstanding currently.
HSBC is confident that these nations would be able to tackle the issues of maturing debt and fiscal deficits through a raft of issuances of sovereign debt in the near-term.