September 9, 2019 / 5:11 PM / 7 days ago

Mozambique gets green light for Eurobond debt swap plan

LONDON (Reuters) - Creditors holding 99.5% of Mozambique’s Eurobond support its debt restructuring proposal, the country’s government said in a statement on Monday, paving the way for an overhaul of part of its heavy debt burden.

Mozambique said in May it had agreed a restructuring deal “in principle” with the majority of holders of the $727 million notes maturing in 2023 MZ139100352= after a hidden debt scandal in 2016 prompted the International Monetary Fund and foreign donors to cut off support, triggering a currency collapse and a default on the country’s sovereign debt.

One of the world’s poorest countries, Mozambique is also trying to restructure other chunks of its debt, which has seen its debt-to-GDP ratio hit 113%, IMF data shows.

For the Eurobond overhaul, it needed the consent of at least 75% to push through its planned restructuring and in a statement on Monday the government said it expected settlement to “occur on or around 30 September 2019.”

The restructuring will see the issuance of $900 million of new bonds maturing in 2031.

The amortizing bond comes with an interest rate of 5% up to September 2023 and thereafter 9% until maturity. The proposal also includes up to $40 million in cash payments.

Despite objections by creditors that they had to undergo a second restructuring in around three years, the debt swap plan was seen by many as investor friendly.

The bonds, which had tumbled to little more than 50 cents in the dollar in 2016, last traded at 101.5 cents MZ139100344=, according to Refinitiv data. However, that pricing takes into account accrued interest, which amounted to around 39 points, according to analysts.

The defaulted bond is tightly held and many of the current investors are specialized in distressed assets and would have picked up the bonds when its price tumbled to low points.

The biggest group of creditors in the instrument is the Global Group of Mozambique Bondholders (GGMB), representing holdings of around 68% of the issue, which includes funds managed or advised by Farallon Capital Europe LLP, Greylock Capital Management, LLC, Mangart Capital Advisors S.A. and Pharo Management LLC.

Mozambique’s debt restructuring has been complicated by a number of legal proceedings in the country itself and abroad. Some investors expected that presidential, parliamentary and provincial elections scheduled for Oct. 15 could raise more issues.

The document seeking investor consent published late-August spelled out that the government had not yet obtained all administrative approvals to issue the new bonds, and said this could result in delays.

On Monday, government restructuring and legal advisers did not respond to requests for confirmation of whether those approvals had now been granted. A source close to the transaction said it was Mozambique’s responsibility to tick all those boxes, yet added that they did not anticipate a delay.

Reporting by Karin Strohecker; Editing by Alexander Smith and Sandra Maler

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