Holders of Mozambique’s sovereign dollar bonds said on Thursday the government had no reason to honour guarantees on loans given to state-owned firms, which they said should be liquidated to clean up government finances.
Debt-ridden Mozambique released on Saturday a forensic audit report into $2 billion worth of loans made to tuna fishing company EMATUM, security firm Proindicus and Mozambique Asset Management(MAM).
The report by risk management firm Kroll Inc found around a quarter of the money remained unaccounted for. It said no evidence was provided that any assessment took place before government guarantees worth $1 billion were signed. Potential conflict of interest issues were also identified, it added.
Reacting to the report, the Global Group of Mozambique Bondholders (GGBM) said in an emailed statement it was “evident that there is no basis — in either Mozambican or English law — for the Mozambique government to honour the purported guarantees of the Proindicus and MAM loans.”
“Disavowal of those purported guarantees and the liquidation of Proindicus, MAM, and Ematum is the appropriate restructuring that needs to take place to clean up the system,” GGBM said.
This would also help insulate the government balance sheet from further liabilities and help restore access to external financing for Mozambique, the group added.
Discovery of the previously hidden credits led the International Monetary Fund and Western donors to halt support to Mozambique, triggering the collapse of its currency and leading to a default on debt.
Mozambique told its creditors last autumn that its debt position was unsustainable and it had to renegotiate repayment terms. Bondholders dug in their heels, saying they had already accepted one debt swap in the spring of 2016, and other lenders should be first in line to take additional pain.
In its latest statement, the group also said Mozambique’s economy was improving thanks to a strengthening of the Metical currency, a recovery in exports and an increase in foreign exchange reserves.
Government efforts to tackle expenditure such as fuel subsidies, increased tax receipts and a recovery in foreign direct investment had also helped, the group said.
The GGMB estimated that the government’s capacity to service its debt payments over the next five years had improved by about $850 million.
The 2023 bond has some $727 million outstanding, according to Reuters data. Two-thirds of that issue is held by the steering committee of the group, or large bondholders supporting it, a lawyer for the GGBM said.
(Editing by Sujata Rao and Jon Boyle)