Mozambique’s Eurobond enjoys huge rally amid easing political tensions
Mozambique’s sole international bond has delivered strong returns this year as political and social unrest subside and plans by TotalEnergies to restart a multibillion-dollar natural gas project in the country gain momentum.
After reaching as high as 18% on April 9, the bid yield on Mozambique’s US$900m 9% Eurobond due in September 2031 has come down to 13% with a bid price of 87.125 as of August 7, according to LSEG data. That is a performance of 28% in just four months – far exceeding the average returns across emerging market bonds in 2025.
The improving outlook for Mozambique led Fitch to keep its CCC rating on the country unchanged on Friday, August 1, after downgrading the sovereign in February from CCC+, citing at the time unresolved political and social unrest as well as financing strains and domestic debt service risks. Mozambique is rated Caa3 by Moody’s and CCC+ by S&P.
The financing strains on Mozambique’s 2031 US dollar bond are less severe given annual coupon payments are currently at around US$80m, according to Fitch, though principal payments of around US$250m a year start in 2028 ahead of the 2031 maturity.
“We are constructive on the credit and happy with the price action, but this does not mean we are not cognisant of the risks associated with the Eurobond it has outstanding,” said Giulia Pellegrini, lead portfolio manager for emerging markets debt at Allianz Global Investors. “That bond itself has come out of a restructuring, so Mozambique is not new to these risks.”
The bond was restructured in 2019 after Mozambique defaulted two years earlier, with the previously outstanding US$726.5m 10.5% 2023 notes swapped for the current US$900m bond, which had paid a coupon of 5% until 2023 before stepping back up to 9%.
Controversial
The restructuring was considered controversial, since the bonds stemmed from illegal loans made by Credit Suisse and VTB to state-owned tuna fishing fleet company Ematum, which were subsequently exchanged for the bonds.
“Some will see a new restructuring as likely but we are not in that camp,” said Pellegrini. “What makes us constructive is that the domestic political headlines have subsided. The other development which makes us positive is Total showing it has appetite to get back to work in the country again.”
TotalEnergies is expected to restart a US$20bn liquefied natural gas project in Mozambique later this year after halting it in 2021.
Political and social tensions have eased considerably in 2025 following the arrival of new president Daniel Chapo in January and his subsequent political agreement with opposition parties to address the tensions. Although an election was held in October in which the ruling Frelimo party was declared the winner and its leader, Chapo, proclaimed president-elect, the outcome was disputed by Podemos member and figurehead of a protest movement, Venancio Mondlane, who also ran.
Nevertheless, Mozambique still faces a number of risks, including a current account deficit set to widen to 26% and 29.4% in 2025 and 2026 from 11% in 2024, according to Fitch, from a jump in imports associated with LNG projects. Meanwhile, real GDP growth slowed to 2.2% in 2024 from 5.5% in 2023, with growth only marginally rising to 2.5% in 2025, according to Fitch.
The country also faces a wider fiscal deficit, although Fitch expects this to narrow to 3.4% of GDP in 2025 from 4.9% in 2024. Meanwhile, government debt will remain high at 92% of GDP through 2026 and 2027 from 91% in 2024.
"Prolonged protests following the October 2024 presidential election translated into weaker economic activity, a widening fiscal deficit and suspension of the country's IMF programme, impairing the government's ability to meet its high local currency maturities in 2025 and 2026,” said Fitch.
“Switch auctions on local currency bonds, central bank borrowing and short-term financing are being used to service debt, but the large financing needs pose a significant vulnerability.”