SEC Scrutinizes the Sale of Mozambique ‘Tuna Bond’
US joins UK and Switzerland in looking into role of banks involved in the 2013 issue
DECEMBER 29, 2016
Financial Times
by Elaine Moore
US authorities have joined the UK and Switzerland in scrutinising “tuna bonds” issued by Mozambique via sales arranged by Credit Suisse, Russian bank VTB and BNP Paribas.
The US Securities and Exchange Commission wrote to bondholders earlier this year requesting information about the $850m bonds sold in 2013, according to investors who were contacted.
Mozambique is facing its worst economic crisis since a civil war ended in 1992, and has requested debt relief from bondholders for the second time in a year amid a currency plunge that has pushed the country’s external debt burden to 130 per cent of GDP.
The southern African country first sold bonds to international investors three years ago to finance a new state-owned fishing company, Ematum, but was later found to have spent the bulk of the funds on naval vessels and other security equipment.
Under pressure from donors, Mozambique swapped the Ematum debt for a longer-dated government bond earlier this year, but the relationship between creditors and the country quickly soured when the government revealed more than $1bn of undisclosed debt linked to state-affiliated companies.
The International Monetary Fund and other donors suspended aid programmes in the wake of the revelation, while multibillion-dollar gas projects have been delayed and the metical has fallen sharply against the dollar, raising the cost of servicing the state’s debt. Mozambique has agreed to an independent audit of the loans in the hope of sealing a new deal with its donors, and the audit is expected to be completed in the first three months of 2017.
In June, the UK’s Financial Conduct Authority and Switzerland’s Finma confirmed they had launched early-stage inquiries into alleged irregularities around the loans — focusing on the role of the banks. Credit Suisse declined to comment at the time on the FCA/Finma inquiries, while VTB said it was not aware of any investigations.
The SEC on Thursday declined to comment on the letters, which were first reported in the Wall Street Journal, and has not announced a formal investigation into the bonds which were issued under English law.
Investors in Mozambique have yet to agree to a second debt restructuring and a bondholder committee has formed to negotiate with the government that includes AllianceBernstein, Franklin Templeton and hedge fund Greylock Capital Management.
Meanwhile, prices for the restructured “tuna bond” that matures in 2023 have fallen from almost 90 cents on the dollar in April to 60 cents, equivalent to an annual yield of 23 per cent — one of the highest in the world.
VTB said in a statement on Thursday that it was not aware of any investigation by the SEC in relation to the bank.
“VTB executed the transactions with Mozambique state-owned companies in compliance with appropriate policies — the government of Mozambique confirmed to us that they were following the necessary internal and external legislation and that comprehensive information on the transactions was disclosed to creditors and investors,” the statement said.
Credit Suisse and BNP declined to comment.
DECEMBER 29, 2016
Financial Times
by Elaine Moore
US authorities have joined the UK and Switzerland in scrutinising “tuna bonds” issued by Mozambique via sales arranged by Credit Suisse, Russian bank VTB and BNP Paribas.
The US Securities and Exchange Commission wrote to bondholders earlier this year requesting information about the $850m bonds sold in 2013, according to investors who were contacted.
Mozambique is facing its worst economic crisis since a civil war ended in 1992, and has requested debt relief from bondholders for the second time in a year amid a currency plunge that has pushed the country’s external debt burden to 130 per cent of GDP.
The southern African country first sold bonds to international investors three years ago to finance a new state-owned fishing company, Ematum, but was later found to have spent the bulk of the funds on naval vessels and other security equipment.
Under pressure from donors, Mozambique swapped the Ematum debt for a longer-dated government bond earlier this year, but the relationship between creditors and the country quickly soured when the government revealed more than $1bn of undisclosed debt linked to state-affiliated companies.
The International Monetary Fund and other donors suspended aid programmes in the wake of the revelation, while multibillion-dollar gas projects have been delayed and the metical has fallen sharply against the dollar, raising the cost of servicing the state’s debt. Mozambique has agreed to an independent audit of the loans in the hope of sealing a new deal with its donors, and the audit is expected to be completed in the first three months of 2017.
In June, the UK’s Financial Conduct Authority and Switzerland’s Finma confirmed they had launched early-stage inquiries into alleged irregularities around the loans — focusing on the role of the banks. Credit Suisse declined to comment at the time on the FCA/Finma inquiries, while VTB said it was not aware of any investigations.
The SEC on Thursday declined to comment on the letters, which were first reported in the Wall Street Journal, and has not announced a formal investigation into the bonds which were issued under English law.
Investors in Mozambique have yet to agree to a second debt restructuring and a bondholder committee has formed to negotiate with the government that includes AllianceBernstein, Franklin Templeton and hedge fund Greylock Capital Management.
Meanwhile, prices for the restructured “tuna bond” that matures in 2023 have fallen from almost 90 cents on the dollar in April to 60 cents, equivalent to an annual yield of 23 per cent — one of the highest in the world.
VTB said in a statement on Thursday that it was not aware of any investigation by the SEC in relation to the bank.
“VTB executed the transactions with Mozambique state-owned companies in compliance with appropriate policies — the government of Mozambique confirmed to us that they were following the necessary internal and external legislation and that comprehensive information on the transactions was disclosed to creditors and investors,” the statement said.
Credit Suisse and BNP declined to comment.
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