Mozambique's government is struggling to reach consensus
with a group of bondholders over a commercial debt
restructuring plan. It might be the first case in a new wave of
emerging markets gone wrong.
The plan relates to what began as $850 million of so-called
tuna bonds, which global investors originally bought from the
government back in 2013 to fund a tuna fishing fleet. But while
the money was supposed to go to state-owned firm Ematum, it
became clear some months later that $500 million of it had been
used to buy ships for the navy.
In April this year it emerged that the government had, in
addition to the bonds, secretly taken out two loans worth a
total of $1.1 billion, arranged by the London branches of
Credit Suisse and Russian bank VTB. Both the UK's Financial
Conduct Authority and Switzerland's Finma launched early-stage
inquiries into the loans in the summer, but the result is not
These loans, made in 2013 and 2014, were also for
state-owned companies, and were also used to fund defence
The government 'accidentally’ presented
the debt reprofiling as a restructuring
Charles Blitzer, previously of the IMF, is advising the
bondholders' committee. He told IFLR that bondholders will
happily enter negotiations with the government when it follows
best practice for sovereign debt restructurings, referring to
the fact that the IMF hasn't yet carried out a full audit.
"Negotiating the debt relief before the IMF has prepared a
programme is a little premature, and against general principles
for sovereign-creditor relations," he said. "The bondholders
still have an infinite number of questions around the two
Fundamental to the issue is the legality of the loans.
They're governed by English law, so the applicable law can't
later be changed to alter the structure. And although
guaranteed by the government, they weren't approved by
parliament – which puts them in breach of the
country's constitution. Whether or not they constitute odious
debt will be uncovered in the audit.
When the undisclosed loans were uncovered, the IMF and other
donors subsequently withdrew their support of the country. This
coupled with commodity prices where they are, and a rapid
currency devaluation have put the pressure on.
Blitzer's bondholders have also argued that the
restructuring is not necessary in the first place since it
already happened earlier this year. But according to White
& Case partner Ian Clark, they weren't restructured, they
were reprofiled. Debt reprofiling is a common preventative
technique that extends the maturities of notes without reducing
Creditors swapped their Ematum tuna notes for new direct
sovereign obligations maturing in 2023, with an increased
coupon. According to local news reports, the government
'accidentally' presented this as a restructuring. The
government's plans to treat all creditors equally, or pari
passu, has further damaged its relationship with the
Another of the bondholders' gripes is the breadth of
creditors on whom the burden of the restructuring will fall.
Only 20% of Mozambique's debt is commercial. The remaining is
provided by multilateral lenders and the official sector, both
of which historically don't participate in sovereign debt