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Mozambique to default again on ‘hidden debt’ payment due today

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Mozambique’s finance ministry has confirmed the country will not pay the first full instalment on the sovereign-guaranteed loan taken out by state-owned security firm ProIndicus. The payment, worth almost $120 million, was due today, 21 March.

The country is currently asking the creditors of ProIndicus, as well as the lenders to two other state-backed security companies, to restructure the loans, having admitted in October last year that the government has no funds to make the scheduled repayments.

ProIndicus was the first of three companies established in 2013-14 by Mozambique’s secret services to borrow $2 billion to procure maritime security hardware and technology from Lebanese shipbuilding group Privinvest. Mozambique made the first repayment on the loan, of $24.88m, in March 2016, but will not make this year’s far bigger payment.

The three companies – ProIndicus, EMATUM, and MAM – secured the loans with the help of sovereign guarantees granted by then-finance minister Manuel Chang, in defiance of the country’s budget law and constitution. Mozambique’s administrative court and a parliamentary inquiry have ruled that the guarantees are illegal, leading to calls for Mozambique to refuse to repay the debt.

Mozambique’s Prime Minister reaffirmed at the start of March that the government wants to honour the guarantees. However, negotiations with the creditors have yet to start in earnest.

Rogerio Nkomo, spokesman for finance minister Adriano Maleiane, told Zitamar News on Tuesday that the government is currently waiting for a restructure proposal to come from its advisers, investment bank Lazard Freres and law firm White & Case. Maleiane said in February that he hoped it would be ready by the end of March.

Nkomo confirmed that the ProIndicus payment, of $119.424 million plus interest, would be missed – saying “nothing has changed” since the government’s announcement in October 2016 that it could not pay. In January Mozambique also missed the first coupon payment on a sovereign eurobond it sold to replace the EMATUM facility in April 2016.

Mozambique and ProIndicus already fell into technical arrears on the ProIndicus loan a year ago, when the country’s sovereign rating was downgraded by Standard & Poor’s. Under the terms of the financing, the downgrade entitled creditors to call for immediate payment – and although most agreed to waive the right, one creditor – owed around $2.7 million, called on the guarantee, which was not paid.

In May 2016, the third company – MAM – failed to make its first repayment, which is still outstanding.

The loans to MAM and ProIndicus are believed to be held partly by Mozambican banks, leading to fears that the failure to make today’s payment on ProIndicus will cause a crisis in Mozambique’s already weak banking system.

An independent international audit into the three companies and loans is currently being conducted by investigations company Kroll, which has until the end of March to deliver its report to a troika of Mozambique’s Attorney General, the International Monetary Fund, and the Embassy of Sweden in Mozambique, which is financing the audit. Some of Mozambique’s creditors have said they will not start restructuring negotiations until the audit report is made public.[/ihc-hide-content]

© 2017, Zitamar Ltd. Reproduction and dissemination prohibited without written permission.

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