Mozambique lays out painful debt-restructuring plan to creditors

By Karin Strohecker and Marc Jones

LONDON (Reuters) – Mozambique alarmed its creditors on Tuesday by asking them to take a painful write-down on roughly $2 billion of debt, which for some will be the second heavy blow in as many years.

Shortly after restructuring a Eurobond in 2016, Mozambique’s government admitted to $1.4 billion of previously undisclosed loans. Much of that money was spent on building a state tuna-fishing company and upgrading maritime and military security.

The disclosure prompted the International Monetary Fund and foreign donors to cut off support, triggering a currency collapse and leading to a default in what was already one of the world’s poorest countries.

The three scenarios given to creditors by the Mozambique finance ministry during a presentation in London included extending maturities on the outstanding defaulted debt to between eight and 16 years and a 50 percent “haircut” – or write-off – on interest and penalties owed.

The slides seen by Reuters also had two options with haircuts on the original amounts loaned – the principle – with shorter maturity debt getting hit hardest.

The response by those at the meeting was muted. Creditors said they expected this was just a first offer from Mozambique.

Two who spoke to Reuters on condition of anonymity said they were disappointed that the offer did not include possible bump-up payments if the country’s economy picks up once gas production begins, which is expected by late 2022.

Substantial offshore gas reserves were discovered off the Mozambique coast more than a decade ago. But progress in getting the infrastructure in place to tap the resource has been glacial.

“Given where their starting point is, I expect we are looking at lengthy negotiations,” one of the bondholders said.

Phillip Blackwood, managing director of bond fund EM Quest, added: “They should include GDP-linked securities based on the new London Term Sheet in the offer.”

“If it is just a question of pain and debt distress in the next five to seven years for Mozambique, then investors would be happy to give them relief. But when the (gas) bonanza kicks in, this should be used for poverty reduction as well as compensation to investors who helped them through the crisis.”

During a second presentation given to media, Mozambique said it expected to reach a primary balance in its budget by 2022.

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