Mozambique close to default as talks fail

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.

Source: Bloomberg