Restructuring documentation seen by Zitamar contains an admission by Mozambique and its advisers that the EMATUM guarantee was never valid
Mozambique has moved to exclude any bondholder who participated in, or knew of, corruption in the three ‘hidden debt’ deals — ProIndicus, EMATUM, and MAM — from a restructure of the sovereign bond that replaced the EMATUM notes, and any bondholder who knew that the then finance minister Manuel Chang did not have the authority to provide EMATUM with a sovereign guarantee.
In what amounts to an admission from the Mozambique government and its advisors, investment bank Lazard Freres and law firm White & Case, that the sovereign guarantee for the EMATUM loan was invalid, the restructure excludes any investor who “had actual knowledge of former Minister of Finance Manuel Chang’s lack of actual authority as a matter of Mozambique law to execute the EMATUM Sovereign Guarantee”.
The new debt would replace another sovereign bond issued in 2016 to refinance notes issued by EMATUM, one of three bankrupt companies set up by the Mozambican secret services and military to place orders worth $2 billion with defence contractor Privinvest.
The restructure efforts come at a time of multiple legal actions being taken against almost everyone involved in the three deals: Privinvest, the Lebanese shipping company which supplied the boats and its owner Iskandar Safa; Credit Suisse, the bank which arranged financing for ProIndicus and EMATUM; the ‘Credit Suisse three’, former employees of the bank who are alleged — and in two cases have admitted — to taking bribes; Manuel Chang; and against the Mozambican state itself.
Mozambique has asked holders of the sovereign bond to respond by this Friday, 6 September, to the restructure proposal that it has negotiated with a group of bondholders who between them now hold 68% of the bond.
In order to participate in the restructure, however, bondholders have to promise Mozambique that they did not pay, receive, promise to pay, know of, or were party to “any agreement or conspiracy to pay bribes, kickbacks or make other corrupt or otherwise illegal payments, or had any other illegal involvement in such acts, agreement or conspiracy in connection with the Proindicus Transaction, the MAM Transaction or the EMATUM Transaction”, when they bought the current bonds in 2016.
That provision will presumably exclude the lead arrangers, Credit Suisse and VTB Capital, who tried and failed to keep the existence of the ProIndicus and MAM loans secret from investors when the eurobond was marketed in 2016. Reporting by Zitamar News and the Wall Street Journal on that process led to the ProIndicus and MAM loans being made public.
The admission that Manuel Chang did not have authority under Mozambican law to execute the sovereign guarantee for EMATUM will raise further questions over the role of international law firm Clifford Chance, and Mozambican law firm Couto, Graca & Associados, who are known to have acted as lenders’ counsel at least on the guarantee for ProIndicus, and may have also done so for EMATUM and MAM.
Credit rating agency Moody’s also took the illegal government guarantee seriously, giving the EMATUM notes the same B1 rating as it gave the government of Mozambique when they were issued in 2013.
It could also create an awkward situation for Mozambican banks who are thought still to have holdings in the eurobonds, as they will have to testify to having lacked a basic understanding of Mozambican law — the jurisdiction in which they operate — in order to participate in the restructure.
If enough investors admit to knowledge of the corrupt schemes or of Manuel Chang’s lack of authority to sign the sovereign guarantee, it could hamper Mozambique’s efforts to get 75% of bondholders to agree to the restructure.
The whole EMATUM financing, as well as the guarantee, have now been ruled invalid by Mozambique’s Constitutional Council — but the government is still pushing ahead with this second restructure, which will see it sell $900 million of new bonds which it will be repaying until 2031. The new debt is expected to cost the country in excess of $2 billion by the time it finishes paying them off.
Speaking to journalists last month, finance minister Adriano Maleiane justified the decision by saying that “under our constitution and for the population, third parties of good faith cannot be prejudiced” — that is, that Mozambicans — among the poorest people in the world — would not want international banks and investors to lose out on investments they were illegally sold by a previous government.
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