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Mittwoch, 18. Januar 2017

Mozambique will not blink first as battle with bondholders heats up

Lusaka/London — Do not expect Mozambican officials to back down in a stand-off with investors, even though it may be the first African nation to default on dollar bonds since 2011.
As recently as last week, bondholders were convinced the nation would pay the almost $60m bond-coupon on schedule on January 18. Not only did the government on Monday say that was not happening, it also signalled it will not make payments in 2017. Since Mozambique issued the notes last year, bondholders have discovered the southern African country has debts it failed to disclose, a revelation that prompted the IMF to withdraw its support in April.
"It might put the restructuring discussions in a more fractious position between the two sides with the government having done this and bondholders feeling aggrieved," said Stuart Culverhouse the London-based chief economist at Exotix Partner who downgraded his outlook on Mozambique’s bonds less than two weeks before they plunged in October. Neither side was on a "good footing", he said.
Discussions could result in a writedown of as much as 40%, Culverhouse said. The creditors include Franklin Templeton Investment Management and AllianceBernstein.
Mozambique is being advised by Lazard and White & Case, which acted for Ukraine during its $15bn debt restructuring in 2015. The Eastern European country ultimately backed down on its threat to default.
Even after missing payments, most sovereigns typically sell new bonds quickly, but "it doesn’t seem likely that Mozambique will easily get back to the market for some years to come", said Marco Ruijer, who oversees about $7bn of emerging-market debt at NN Investment Partners in the Hague and has sold his Mozambican holdings in October. "That could indicate a harsher deal."
Playing hardball
Saying it would miss the interest payment could be part of the government’s "tough negotiating strategy" to compel bondholders to accept more lenient repayment terms, BMI Research, a unit of Fitch Ratings, said in an e-mailed note. It would not bode well for future negotiations, it said. The African nation has a 15-day grace period to pay the coupon, according to the bond prospectus.
Investors, who formed a creditor committee in 2016, have refused to start restructuring negotiations until the authorities publish an audited report detailing previously undisclosed debt and reach a deal with the IMF. Charles Blitzer, a Washington-based former IMF official who is advising the group, declined to comment on the government’s announcement on Monday.
Tiny economy
Mozambique’s economy has contracted for two consecutive years to $12bn at the end of 2016, according to IMF estimates. It has never exceeded $16.9bn, which is less than Saudi Arabia raised in its debut dollar bond sale in 2016.
The capacity of the former Portuguese colony to make debt payments was "extremely limited", the Ministry of Economy and Finance said in an e-mailed statement on Monday. The authorities, which said in October that they needed to restructure the government’s commercial debt, are in talks with the IMF about resuming support to the nation after it was suspended in April.
The $727m bonds due January 2023 fell to 55.35c on the dollar on Monday, having a reached a record low of 50c last week.
The IMF should "coax the issuer to be more constructive on the contents of talks and accelerate the talks as well", said Koon Chow, a strategist at Union Bancaire Privee in London.

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