NAIROBI, Kenya—Mozambique has approached international creditors, saying its debt is unsustainable and needs to be restructured, a move necessary to improve relations with its donors and the International Monetary Fund, as well as to avert a financial collapse.
According to a presentation on the southern African nation’s finance-ministry website, debt will amount to more than double gross domestic product this year.
Billions in hidden debt held by the small, gas-rich nation came to light when The Wall Street Journal disclosed that a number of state-owned firms secretly had borrowed as much as $2 billion using the sovereign as a guarantor.
After that disclosure, the IMF suspended a bailout for the country, which it had approved in late 2015. International donors such as the U.K. and European Union followed suit and suspended their budget-support programs, dealing a blow to the country’s finances.
The IMF and Mozambique’s donors have been demanding an independent audit of the country’s debt and how that money was spent.
A team of negotiators from the IMF will return to the capital, Maputo, in coming weeks to begin negotiations over a new program, people familiar with the matter said. A team was last there last month but didn’t announce a restart to talks over a new bailout.
Starting a debt restructuring, which is bound to be a long and litigation-heavy process, is a prerequisite for a new IMF program, the people familiar with the situation said, adding that agreement on the details and parameters of the audit is another precondition.
According to Mozambique officials and international diplomats, some progress has been made on agreeing on details of an audit, although it still isn’t clear whether the audit will be made public in full.
Mozambique caught bondholders by surprise by announcing the restructuring on the finance-ministry website and holding a conference call with investors on Tuesday morning, sending the price of its bonds tumbling to 67 cents on the dollar from 82 cents on Monday, a person familiar with the matter said.
Mozambique issued $726 million in bonds in April as part of a voluntary restructuring of bonds sold in 2013 by investment banks Credit Suisse Group AG and VTB Group on behalf of a state-owned tuna-fishing company. The bonds were swapped for sovereign debt after it emerged that the tuna business wasn’t functioning and much of the borrowed money had been used on military spending.
Any new restructuring will be complicated by the existence of about $1.2 billion in loans Credit Suisse and VTB secretly made to other Mozambican state-owned companies and then resold to other investors. It is unclear how holders of the loans would be treated compared with bondholders.
Mozambique stated in the presentation on its website that it is committed to treating creditors equally in negotiations and encouraged them to form committees to start talks.
The country’s financial needs have multiplied since the last IMF program, valued at just under $300 million, was approved at the end of last year, according to people familiar with the matter. The old program, currently suspended, will need to be canceled, and a new one will be needed to address the deteriorating economic conditions, they said.
Several creditors who financed the borrowings to the state-owned businesses said they are considering litigation.
In their crosshairs isn’t just Mozambique, but also Credit Suisse and VTB, the two banks that arranged the loans, and are currently being investigated by authorities in the U.K. and Switzerland over their conduct.
Both banks deny wrongdoing, as does the Mozambican government, which blames its troubles on delays in bringing its vast natural-gas reserves online because of low global energy prices.
The presentation on the finance ministry’s website outlining the financial problems and proposing the restructuring was prepared by government adviser, Lazard, and lawyers with White & Chase LLP.
Lazard has a long record of guiding sovereign-debt-restructurings, including that for Greece.
The Wall Street Journal
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