Mozambique reaches agreement with creditors to share gas revenue

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The Finance Ministry said Mozambique has reached an agreement with the bulk of its creditors to restructure a $726.5 million Eurobond. The deal includes extending maturities and sharing future revenues from huge offshore gas projects.

After admitting in 2016 to $1.4 billion of previously undisclosed lending, much of which was supposed to be spent on a tuna fishing fleet, Mozambique has been battling to recover from a debt crisis. The development prompted the International Monetary Fund and foreign donors to cut off support to the southern African state, triggering a currency collapse and a default on sovereign debt.

The new deal will see Mozambique issue a new $900 million Eurobond maturing in 2033 with a coupon of 5.875 percent,  just over half what the current outstanding bond was designed to pay in interest.

Principal repayments of the bond, which would begin in 2019, roughly equates to the outstanding sum plus just over $180 million in unpaid interest.

Creditors would also receive 5 percent of future fiscal revenues from the Area 1 and Area 4 natural gas projects through a separate payment. However, the payments will be capped at $500 million. A bondholder close to the situation said the plan would provide Mozambique with cash flow relief of around 85 percent.

The anonymous bondholder said “it is a good deal, there are no winners or losers here. All the parties wanted to define a package that is fit for the reality in Mozambique, finding a robust structure with low probability of default in the future and that will mirror the cash flows”.

Reuters notes that the deal hasn’t been completed. Support from creditors holding 75 percent of the bond will be needed to activate the collective action clauses.

Mozambique said the four creditors who had agreed in principle to the restructuring- Farallon Capital Europe LLP, Greylock Capital Management, LLC, Mangart Capital Advisors SA and Pharo Management LLC, controlled around 60 percent of the 2023 bond.

William Jackson, chief emerging markets economist at Capital Economics, said even when successful, “the deal would only make a relatively small dent in Mozambique’s overall fiscal problem. Mozambique’s public debt ratio, at around 120 percent of GDP, will remain the highest in Sub-Saharan Africa”.

 

 

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