Mozambique's metical currency slid 6 percent on Wednesday after Moody's and S&P issued ratings downgrades amid mounting concerns about a proposed debt restructuring for a troubled $850 million bond issued by state-run tuna-fishing company Ematum.
S&P lowered Mozambique's sovereign credit rating from B- to CC, which is "extremely speculative" and just one notch above potential default status.
Moody's downgraded Mozambique's issuer rating to B3 from B2, maintaining the rating on review for downgrade.
Mozambique is set to publish more details on Thursday of its exchange offer for the bond, issued in 2013, including coupon and pricing.
"The exchange rate is tanking because most market players thought the ratings agencies would wait until after the additional details were released," said Hanns Spangenberg, senior economist at NKC African Economics.
"It seems the details that they have suggest that if the debt exchange does go through then it is a default," he said.
The original bond was presented as funding for "tuna fishing and related infrastructure" although it quickly became apparent that much of the cash was for maritime surveillance and security.
Mozambique last week asked holders of bonds in Ematum to swap the debt for new U.S. dollar-denominated 2023 bonds to smooth its debt maturity profile.
It is offering to exchange 2020 maturing bonds, with $697 million outstanding that paid a 6.305 percent coupon, into a new fixed rate sovereign note due 2023.
Wednesday's losses brings the metical's decline to over 16 percent so far this year, part of a wave of currency weakness across Africa in the wake of collapsing commodity prices.
Spangenberg said the downgrades should not impact efforts to tap Mozambique's vast natural gas reserves because the private sector will raise the debt needed for such projects.