MAPUTO (Reuters) - Mozambique was heading toward a default on Monday after the government failed to honour a sovereign guarantee behind a $535 million loan taken out by a state-run company to build shipyards that have not materialised, a Finance Ministry source said.
The repayment crisis in what was once one of the continent’s brightest economic prospects is likely to trigger a reappraisal of the wave of commercial lending to African governments during the past decade of relatively strong regional growth.
The state firm, Mozambique Asset Management (MAM), was unable to make the $178 million payment and the government - which last month admitted to $1.35 billion of secret foreign borrowing - also failed to come up with the cash, the source said.
Foreign creditors behind the loan, organised by Russia’s VTB Bank, had rejected the war-scarred Southern African country’s initial proposals to renegotiate payments, but were still in talks to try to reach a deal, the source added.
VTB declined to respond to questions submitted by Reuters earlier in the day. Calls and messages sent to Finance Minister Adriano Maleiane’s mobile phone went unanswered.
Although a grace period built into most loans means Mozambique is not in formal default, the secret borrowing revelations - which takes its foreign debt obligations to $9.86 billion, or 80 percent of GDP - made a repayment crunch almost inevitable.
Earlier on Monday, ratings agency Fitch downgraded Mozambique’s credit rating to ‘CC’ from ‘CCC’, indicating that “a default of some kind appears probable”.
The VTB loan had been earmarked for the construction of shipyards in the capital, Maputo, and the northern town of Pemba to service the former Portuguese colony’s nascent but potentially huge offshore gas industry.
Proven reserves of 180 trillion cubic feet - enough to supply France, Britain, Germany and Italy for nearly two decades - are among the world’s biggest recent finds, but extracting the gas is taking far longer than expected.
Now energy experts do not expect production for another decade, undermining the immediate need for new shipyards.
In another setback for Maputo, Italy’s Eni said on Monday it was in no hurry to sell its stake in an offshore block in the Rovuma Basin, near the border with Tanzania.
The MAM loan is just the tip of a debt iceberg - now exposed as unsustainable - built up in the wake off the gas discoveries.
Another state firm, Proindicus, owned by the Ministries of Interior and Defence and the security services, took out loans of $504 million from Credit Suisse Group and $118 million from VTB, according to an International Monetary Fund (IMF) source.
A February 2013 Credit Suisse document obtained by Reuters said the money was to be spent on high-speed naval interceptors, radar stations, offshore patrol vessels and aircraft.
Credit Suisse has declined to comment on the document.
Those were in addition to a $850 million bond, also arranged by Credit Suisse and VTB in 2013, to build a tuna fishing fleet.
The offshore patrol vessels are now sitting idle on stands on the quayside in Maputo, near the tuna boats, which are rusting at their moorings. The so-called tuna bond was restructured at the end of March.
Furious about being kept in the dark about all the borrowing, foreign donors and the IMF have suspended assistance, making the government’s already dire financial straits even worse.
Compounding Maputo’s woes, the finance minister said on Monday the French-built boats would have to be sent for a refit because they did not meet European Union specifications. He did not reveal costs or say why they fell short of EU standards.
“The costs involved in refitting the boats are high, hence the work is being done in phases,” Maleiane was quoted as saying by the state news agency.
Additional reporting by Ed Cropley and Joe Brock, writing by Ed Cropley; editing by Jonathan Oatis and G Crosse