Mozambique Reaches Agreement on Restructuring of Eurobonds

(Bloomberg) -- Mozambique reached an agreement in principle on key terms to restructure $726.5 million of Eurobonds, in which bondholders will no longer get access to the country's future natural-gas revenue.

Bondholders will be invited to vote in favor of an exchange of their debt for a new series of securities maturing on Sept. 15, 2031, according to a Finance Ministry statement. The agreement was reached between the government and bondholders representing about 60% of the outstanding debt.

Key Insights

Bondholders will no longer have access to Mozambique's future natural-gas revenue. Under a previous agreement in principle, the government would have paid bondholders as much as $500 million of earnings from liquefied-natural-gas projects that Eni SpA and Anadarko Petroleum Corp. are developing in the north of the country.
The coupon also changes. In the previous agreement, Mozambique would have paid bondholders 5.875%: 4% in cash and 1.875% via capitalization up to September 2023, and with 5.875% in cash only thereafter. Under the new deal, Mozambique will pay 5% in annual interest up to September 2023 and 9% thereafter, until maturity.
Under the previous deal reached in November, the government would have paid back the bond's $900 million principal in five equal annual installments, starting in September 2029 and ending September 2033. The new agreement envisages eight equal semi-annual payments of $112.5 million from 2028 to 2031.

More Details

The government plans to complete the restructuring by Sept. 1 this year, or sooner if possible. Holders of at least 75% of the bonds need to approve the deal for it to proceed.
Mozambique will also pay bondholders $40 million in cash on the closing date of the restructuring. This includes a consent fee and an exchange payment.

Market Reaction

The Eurobond rose 9 cents on the dollar to 94 cents, the highest since December, according to data compiled by Bloomberg.

Bondholder Reaction

“There are some good all-round wins, including for Mozambique, as a result of this resolution,” said Thomas Laryea, the legal adviser for the Global Group of Mozambique Bondholders. “The bondholders stand ready to work with the government to, if possible, close the restructuring before the Sept. 1 outer target date.”
“The four members of the GGMB who signed onto the government's press release have around 60%,” Laryea said. “We have been doing informal soundings with the other bondholders who are aligned with our position. We are confident that we will reach the 75% threshold required in order to make the restructuring effective for 100% of the bonds."
“Implicitly, the value recovery instrument has been replaced by a shorter maturity and higher coupon past 2023,” said Charles Blitzer, a financial adviser to the GGMB.