Moody’s downgrades Mozambique’s “tuna bond” rating

Moody'sCredit rating agency, Moody’s has downgraded the backed senior unsecured foreign-currency rating of Mozambique EMATUM Finance 2020 B.V’s notes from B2 to Caa2, after placing it on review for downgrade in December 2015.

The downgrade of Mozambique’s tuna company follows its announcement on March 9, of an offer to swap $697 million of its notes issued in 2013 on amortising structure and maturing in 2020, for a bullet bond maturing in 2023.

The EMATUM notes take the form of $850 million in loan participation notes, irrevocably guaranteed by the Government of Mozambique (rated B3 and under review for downgrade).

Moody’s says the downgrade is due to its view that the announcement of the swap “is likely to result in a distressed exchange with an economic loss relative to the original promise under the terms of the existing notes.”

The rating still remains on review for further downgrade, which Moody’s expects to conclude when the debt swap is done.

The price and full details of the swap are expected to be announced on Thursday March 17, 2016, and the closing will take place on Wednesday April 6, 2016.

Moody’s says the review for further downgrade reflects the risk that the loss incurred by investors participating in the exchange could be higher than the current estimates of the rating agency. Consequently, there will be further downgrade if the loss to investors from the swap is higher than estimated currently, and an upgrade in rating if it is lower.

“The EMATUM company, which is responsible for the servicing of 41 per cent of the debt, is in a precarious financial position, meaning that the guarantor, the government of Mozambique, is likely to need to step in to service its payments.”

“Indeed, of the $850 million originally issued by the SPV, the government of Mozambique has already taken $500 million onto its own balance sheet. The extension of maturity and the change in the debt structure expected with the new notes will help alleviate the short and medium term pressures on Mozambique’s balance of payment and the foreign exchange reserves level of the Bank of Mozambique, which remain acute,” the agency said.

According to Moody’s, Mozambique’s forex reserves dropped from $3.2 billion to $2.3 billion between July 2014 and December 2015, despite the IMF disbursing a $120 million short term credit facility  in December 2015 to boost the reserves.

By Emmanuel Odonkor

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