Debt renegotiation may allow Mozambique to return to capital markets

21 October 2019

The acceptance of the proposal to restructure Mozambican tuna company Ematum’s Eurobond issuance by holders could allow Mozambique to access the capital market once again and improve its relationship with some of its main creditors, according to the Economist Intelligence Unit (EIU).

The EIU said in its latest report on the government of Mozambique that it is trying to reduce its dependence on traditional investors Portugal and South Africa, although it added that the latter remains an important partner, with a number of bilateral agreements.

In addition to relations with former major donors remaining frozen following the disclosure of over US$1 billion in hidden debt, Mozambique remains isolated from the capital markets, and direct support to the State budget is not expected to return 2016 levels in the medium term.

However, with the increase in investments directly related to installing the facilities needed for natural gas extraction projects in the northern province of Cabo Delgado, it is expected that foreign direct investment will increase and that, at the same time, a there will be significant commercial interest, particularly from countries such as Russia, China and the United States.

The EIU analysts once again mention the fact that state-owned ENH has decided to postpone using the market to raise about US$2.3 billion to secure its 15% stake in the former Area 1 block project operated by US group Anadarko Petroleum Corp and currently by French group Total, which acquired the group’s African assets from the Occidental Petroleum Corporation group.

“Acceptance of the proposed restructuring of the issuance of Eurobonds is likely to enable ENH to secure better conditions,” said the document, which points out that the ExxonMobil group has postponed the final investment decision for the Area 4 block project, in partnership with Italy’s ENI, due to conflicts with radical Muslims that have occurred since 2017 in that Mozambican province, which borders Tanzania.

The document said that the construction of project support facilities mainly relies on the importation of materials, although some investment should be made in the domestic market, particularly in the provision of ancillary services, including financial, legal and construction services.

The start of natural gas production in the Coral field, which is expected to take place in 2023, will lead to Mozambique’s Gross Domestic Product growing at a rate of 8.1% that year, before increasing to 9.9% the following year, the last year under consideration in this report.

Until that year Mozambique’s economy will tend to grow, after minus 0.2% in 2019, to an estimated 4.8% in 2020 and 6.5% in 2021 and 2022.

The inflation rate, which is expected to be around 3.5% this year, is expected to increase steadily over 2020/2024, reaching a rate of 8.1% in the last year, due to the continued depreciation of Mozambique’s currency, the metical. (Macauhub)