MOZAMBIQUE
REPUBLIC RAISES SPECTRE OF HUGE
LOSSES FOR PRIVATE CREDITORSPrivate creditors face substantial losses from the
MOZAMBIQUE government defaulting on its debt,
according to a report published by Moody’s.
The government does not service debt to
external private creditors, which makes up
around 20% of its outstanding debt,
including the sovereign’s 2023 Eurobond.
The sovereign has been in default on the
outstanding US$726.524m 10.50% 2023
bonds since early 2017.“Whether the government reaches an
agreement with private creditors on its debt
restructuring or continues to default on its
debt, the likely loss for private creditors under
our definition remains sizeable,” said Moody’s
analysts. Mozambique’s fiscal strength is very
low due to high public debt, which stood at
112% of GDP at the end of 2017, according to
Moody’s estimates based on IMF data, and the
country’s exposure to currency weakness.
“One of Mozambique’s key credit
challenges is its very weak institutional
framework, reflected by the government’s
non-reporting of debts related to SOEs, as
well as marked shortcomings in its data
reporting,” said Moody’s analysts.“A record of defaults also indicates the
government’s low willingness to prioritise
debt payments.”
Moody’s has a negative outlook on the
sovereign, which it rates Caa3, reflecting risks
related to losses for private sector creditors that
may exceed the ratings agency’s base case.
The government’s rating could be lifted
by a successful restructuring of the
sovereign’s debt, as well as the size of
government proceeds from liquefied natural
gas production and an improvement in the
governance of public finances.
The Global Group of Mozambique
Bondholders, the committee for bondholders
of the 2023s, made a formal proposal to the
Mozambique government in August for a
restructuring of the defaulted 2023 bonds.
The proposal included maturity extension,
coupon reduction, full capitalisation of past-due
interest and, crucially, warrants to give
bondholders access to a share of future fiscal
revenues from Mozambique’s vast gas resources -
something that was not part of the government’s
proposals in March that were swiftly rejected.
The 2023s are bid at 84 to yield 15.31%,
according to MarketAxess prices.ROMANIA
SOVEREIGN SOUNDS OUT BANKS
FOR EUROBONDROMANIA has sent a request for proposal to
banks for a euro-denominated international
bond, according to sources.
The timing of the deal is not known.
Romania was last in the international
markets in June when it sold a US$1.2bn
5.125% 30-year. The transaction was looked at
as a potential sign that market sentiment was
turning positive at the time, although the
notes were bashed about once free to trade.
The 2048s are bid at 97.788 to yield
5.273%, according to Tradeweb.
The sovereign is rated Baa3/BBB–/BBB–.SOUTH AFRICA
SIBANYE TAKES SWIPE AT DEBT PILESIBANYE-STILLWATER is cutting back on its gross
debt through the early repayment of its
medium-term maturing bond.
The gold mining company is funding a
buy back from existing cash resources,
including the US$500m advance proceeds of
a recently agreed streaming transaction
with Wheaton International.
In return for the streaming agreement
with Wheaton International, Sibanye will
deliver a percentage of gold and palladium
produced from its US operations.64 International Financing Review September 8 2018Gloom spreads as South
Africa stumbles into recession
n AFRICA Rand tumbles to record low against dollar
SOUTH AFRICA became the latest trouble spot
for EM as a dismal GDP print gave a lie to any
lingering hopes that a change at the top would
be sufficient to inject life back into the country’s
struggling economy.
President Cyril Ramaphosa staked his
reputation on economic revival when he took
over in February from Jacob Zuma, whose tenure
was plagued by scandal, and investors welcomed
his accession to power in part due to his strong
ties to the business community.
But South Africa entered recession in the
second quarter for the first time since 2009, data
showed on Tuesday, as the economy contracted
by 0.7% quarter-on-quarter.
With growth negative, inflation on the rise
and the economy vulnerable to capital outflows,
the rand has been continually testing new lows
against the US dollar. Last week it fell to 15.6919.
“The issue with the country is that everyone
pinned their hopes on one man, Ramaphosa,
ie, they got Ramaphoria,” said one portfolio
manager. “South Africa’s problems are structural,
so these are not going to be solved overnight,
and certainly not by one man.”
The GDP print left the sovereign’s bonds looking
bruised. South Africa’s June 2048s began the week
quoted at 94.343 on the bid side, according to
Tradeweb, but the GDP numbers prompted a wave
of selling that saw the paper fall to 90.678.
The notes had staged a recovery of sorts by
Friday, climbing back to 92.387.
Even so, some investors see tricky days ahead
for the country. Delphine Arrighi, portfolio
manager at Old Mutual Global Investors, said
South Africa could not be classed yet in the same
bracket as Turkey and Argentina, but its position
still looked weak.VULNERABLE
“It has a large concentration of foreign
holdings in its bond market and also
has one of the lowest carry now among
high yielding currencies, so that makes it
vulnerable,” she said. “The confusion around
the land reform issue and now decisively
weaker growth than expected are also not
helping.”
The ruling African National Congress
is forging ahead with plans to change the
constitution to allow the expropriation of land
without compensation.
Ray Jian, portfolio manager in EM debt at
Amundi Asset Management, expects a reaction
from the rating agencies to the latest economic
numbers.
“The rating downgrade threat, particularly
from Moody’s, which still rates them
investment-grade, will quickly come back given
Moody’s growth assumption is better than the
current GDP print,” he said.
Moody’s responded to the slide into
recession by publishing a report stating
that the country’s weaker than expected
economic performance will exacerbate
fiscal and monetary challenges. It has a
stable outlook on the country, which is
rates Baa3.
South Africa is rated BB by S&P and BB+ by
Fitch, both with stable outlooks.
Jian thinks there could be more volatility
around the corner for the sovereign’s bonds.
“South Africa is still a large overweight for
many investors, especially on the local currency
side,” said Jian. “What is still heavy positioning
will exaggerate the move downward.”
Robert Hogg8 Emerging 2250 p57-66.indd 64 07/09/2018 18:54:49