Mozambique Bondholders Push for Loan Repudiation--Update
June 29 2017 - 3:58PM
Dow Jones News
By Matt Wirz
Fund managers who own Mozambique bonds are calling for the
country to repudiate government guarantees on loans made to the
country by Credit Suisse Group AG and Russia's VTB Bank.
A recently released audit of the loans by investigations firm
Kroll and a similar investigation by the Mozambican parliament show
that there is no legal basis for Mozambique to honor guarantees on
the loans made by the administration of former President Armando
Guebuza, a group of bondholders said in a statement Thursday.
Mozambique defaulted on $762 million of bonds and about $1.2
billion of loans last year, sparking outrage among bondholders, who
say they should be repaid ahead of owners of the controversial
loans.
The bondholders' announcement marks an escalation in their
previously private struggle with Mozambique and the banks that
arranged the loans over how to restructure the country's debts.
Two companies owned by Mozambique's military borrowed the loans
backed by government guarantees in 2013 and 2014 without public
disclosure or parliamentary approval. A third state-owned company
issued $850 million of bonds using similar guarantees in 2013, but
bondholders in March 2016 agreed to delay repayment for three years
in exchange for the conversion of their debt into sovereign
government bonds.
Kroll found that the process for providing the guarantees was
inadequate, violated Mozambican budget laws and may have involved
conflicts of interest.
The country's parliament said in a report last year that the
guarantees breached the constitution and budget laws but voted in
April to legalize the guarantees. The vote "was an administrative
act that has no relevance on the government's decision whether to
honor the guarantees," said Thomas Laryea, the lawyer for the
bondholder group.
Bondholders have "misconstrued the findings of the Parliamentary
Commission and the Kroll report," a VTB spokeswoman said. "The
issued guarantees remain legal and binding obligations of the
state."
A spokesman for Credit Suisse declined to comment. Mozambique's
Ministry of Finance didn't return a request for comment.
Mozambique hired restructuring firm Lazard amid a financial
crisis last fall to start restructuring talks, asking that its
debts be reduced and that the bonds and loans be treated equally.
Bondholders, including mutual-fund firm Franklin Templeton
Investments and hedge funds Greylock Capital Management, NWI
Management and Pharo Management, rejected the idea.
The bondholders Thursday proposed Mozambique resume payments to
them with government revenues as the economy recovers. They also
called for the loans to be repaid only with proceeds from a
liquidation of the three state-owned firms that issued the original
debt. More than $1 billion of the money raised by the companies
remains unaccounted for, according to the Kroll report.
Such a restructuring would likely mean losses for holders of the
loans -- a mix of the banks and private investors. Mr. Laryea says
it would allow Mozambique to return to bond markets while
addressing concerns of international donors, which have frozen
loans to the country, and would "deal appropriately with the
channels of illicit financing."
The group is also approaching donor countries and multilateral
lenders including the International Monetary Fund for support.
Representatives of the group presented their proposal to Paris Club
member countries last week in Paris at the annual meeting of the
informal organization of donor countries.
Disclosure of the loans last year by The Wall Street Journal
prompted some donors to freeze aid to Mozambique pending a thorough
investigation. The IMF called the Kroll report an important step
but said that "information gaps remain, in particular on the use of
the loan proceeds," in a statement last week.
Mozambican watchdog group the Center for Public Integrity, or
CIP, in a statement Thursday called for criminal proceedings
against parties involved in the debt deals. "The Mozambican state
should not pay the debts contracted by the three companies," CIP
said.
Matina Stevis contributed to this article.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
June 29, 2017 15:43 ET (19:43 GMT)
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