UK Financial Regulator Investigates Mozambique Bank Loans

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The United Kingdom financial regulator is investigating possible wrongdoing by the Swiss bank Credit Suisse and VTB of Russia in the matter of the government guaranteed loans, totaling over two billion dollars, which they arranged for Mozambican state or quasi-state companies in 2013-14.
According to a report in the “Wall Street Journal” (WSJ), the U.K. Financial Conduct Authority (FCA) is looking into whether the banks violated regulations governing disclosures to investors. The British regulator is involved because the loans were handled by the London offices of the two banks.
The only loan that became public knowledge at the time was to the Mozambique Tuna Company (EMATUM). In 2013, the banks arranged an 850 million dollar loan for EMATUM on the European bond market.
Two subsequent loans did not involve publicly traded bonds and were kept secret both from the Mozambican public, and from the International Monetary Fund (IMF) until this year. 622 million dollars was lent to Proindicus, a company supposedly set up to provide maritime security to offshore oil and gas concerns and other shipping in the Mozambique Channel. 535 million dollars went to Mozambique Assets Management (MAM), to build shipyards in Maputo and Pemba and a floating dock. To date, there is no sign that MAM has built anything at all.
Earlier this year, the government negotiated with the EMATUM bondholders to restructure this loan, and succeeded in extending the repayment period to 2023, but at the cost of a higher interest rate (10.5 per cent). However, the banks did not inform the bondholders of the Proindicus and MAM loans, which might have made a material difference to how they approached the negotiations.
The FCA is gathering information to see whether the banks failed to make necessary disclosures. The banks themselves are keeping quiet – neither Credit Suisse nor the FCA would comment to the WSJ. while VTB said it was unaware of any investigations.
If the banks can be shown to have committed serious misconduct, the path may be open for the Mozambican government to renege on its guarantees, and refuse to repay. It is already two weeks late on the first repayment of the MAM loan – a payment of 178 million dollars should have been made by 23 May.
But instead, according to sources in the Finance Ministry, discussions are under way with VTB to reschedule the debt.
According to the WSJ, the government has brought in a debt lawyer, Lee C. Buchheit of the company Cleary Gottlieb Steen & HamiltonLLP, to advise on that restructuring as well as repayment of the other bonds and loans arranged by Credit Suisse and VTB. Cleary Gottliebdeclined to comment to the paper.
As the banks should have known, the previous Mozambican government, under President Armando Guebuza, had no legal right to guarantee such huge loans. Every year, the budget law passed by the country’s parliament, the Assembly of the Republic, contains a clause which sets a limit to the amount of loans that the government can guarantee.
In the 2013 budget, that limit was the equivalent of 6.2 million dollars. For the following year, the limit was raised dramatically, to the equivalent of 515 million dollars – but that still came nowhere near legitimizing the guarantees for the EMATUM, Proindicus and MAM loans which together amounted to more than two billion dollars.
The deal about which most is known is the EMATUM bond. The 850 million dollars it raised was supposed to buy 30 boats from the CMNshipyard in the French port of Cherbourg – 24 fishing boats, and six patrol vessels. According to the French press of the time, the total cost of these 30 boats was 200 million euros (about 230 million dollars).
The logical question was – what happened to the other 620 million dollars? The generally accepted story was that it was diverted for military purposes, and the WSJ repeats this version. The Mozambican government seemed to back this up – in 2015 Finance Minister Adriano Maleiane divided the money into 350 million dollars for fishing assets and 500 million dollars for unspecified defence assets.
But that is not what the EMATUM accounts say. Cited by the Zitamar news agency, the accounts revel that 836.3 million dollars were paid for the boats, while the rest of the money – 13.7 million dollars – was spent on bank fees.
If these figures are accurate, the 30 boats from Cherbourg cost an average of 27.9 million dollars each. To make matters worse, the fishing boats cannot do the job they were purchased for.
According to Maleiane, speaking to a parliamentary commission last month, tuna caught by EMATUM cannot be exported to the European Union, because the EMATUM boats do not meet EU specifications. So, in order to gain access to the European tuna market, the boats are being refitted by a South African company.
“What EMATUM explained to us”, Maleiane said, “is that, in order to export tuna to Europe, there are rules that must be followed.
They sent inspectors to look at the boats as they are, and recommended adaptations to comply with the requirements”.
First, an attempt was made to negotiate the refitting of the boats with CMN, but that was too expensive, and so it was decided to hire South Africans to make the necessary changes. The money is not available to refit all 24 boats at once, so a start was made on just ten.
Thus hundreds of millions of dollars were spent on acquiring fishing boats from a shipyard in the European Union, but when they arrived in Mozambique the boats were found not to meet EU requirements.
source: All Africa

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