Mozambique launches exchange offer

IFR 2298 31 August to 6 Septembert 2019
3 min read
Christopher Spink

Mozambique’s controversially generous restructuring of its Eurobond issue, stemming from illicit government loans made to set up a tuna fishing fleet, looks like proceeding despite failing to get approvals domestically.

A group of bondholders speaking for 68% of the US$727m 10.5% of 2023 notes by value said they would back the country’s formal restructuring offer, which barely gives them a haircut at all, despite facing the potential legal threat that the notes could be voided at a later date.

That could happen if a new government taking power after Mozambique’s presidential and parliamentary elections on October 15 upholds the decision of the country’s highest court, which in June ruled the original loan illegal.

The bonds rose two points to be bid at 103 on the back of the launch on Tuesday, before falling back a little to 101.375 by the end of the week.

Mozambique first reached agreement about the headline terms of the deal at the end of May, just ahead of the court decision.

The outstanding bonds are to be swapped for US$900m of new instruments, which will pay a lower coupon of 5% until 2023, before it steps back up to 9%.

The new bonds will amortise over the last four years of their life, with final maturity extended to 2031. The enhanced face value reflects about US$180m of missed interest payments over the last two years.

The generous proposal appears to have eclipsed concerns about the offer receiving full legal backing.

A person close to the bondholder group said no parliamentary approval was required, as with earlier proposals. That might have proved tricky as parliament must be dissolved ahead of the elections on October 15.

Authorisation is technically still required, though, from a council of ministers, and the country’s attorney general must provide a legal opinion “as to the validity and enforceability of Mozambique’s obligations under the new notes”. The administrative court must also confirm the new notes’ legality.

Mozambique warned in the offer documents that while it had “no reason to believe that the new notes will not be authorised, it is possible that the issuer may be unable to obtain one or more of the above authorisations, which would result in a cancellation of the consent solicitation”.

The country can also waive these conditions in any case, it said. That could come back to bite investors in the future, according to a restructuring lawyer not involved in the offer.

Bondholders in an exchange are invited to give up their current rights irrevocably for new bonds.

“Given the recent history of the country it is surprising that the settlement conditions relating to the due authorisation of the new bonds can be waived by the issuer itself,” the lawyer said.

Bondholders have until September 6 to approve the offer, and qualify for a consent fee of US$40m. Holders of at least 75% of the bonds by value must approve the offer for it to go ahead too. If obtained, the settlement date is scheduled for September 30.

The offer can be delayed but must be completed at the latest by October 31, by which time a new government could be in charge.