May 27, 2016 / 7:07 AM / 3 years ago

VTB still talking to Mozambique over loan payment: source

Mozambique's Prime Minister Carlos Agostinho do Rosario addresses a media conference in the capital Maputo, April 28, 2016 REUTERS/Grant Lee Neuenburg

JOHANNESBURG (Reuters) - Russia’s VTB Bank is in talks with Mozambique state firm MAM over a late $178 million loan repayment and expects the government to honour a sovereign guarantee if it cannot pay, a source familiar with the matter said on Thursday.

“In case of MAM default, VTB expects that the loan will be covered by Mozambique guarantees,” the source said.

Mozambique Asset Management (MAM) borrowed $535 million from VTB to build shipyards in Maputo and the northern town of Pemba in expectation of a rapid takeoff in the offshore gas sector but missed a May 23 deadline for its first loan repayment.

Delays to gas projects and at least $1.35 billion of secret government borrowing have created a foreign debt crisis that could lead to serious social unrest if it continues to hammer the economy and currency.

Inflation is already rising because of a regional drought and donors including the International Monetary Fund (IMF) have suspended financial aid after being kept in the dark about the clandestine government borrowing, raising the possibility of delays to civil servant pay.

An $850 million Eurobond launched in 2013 was rescheduled in late March after the government again struggled to make a repayment. Ratings agency Standard & Poor’s classified it as a “selective default”.

Speaking on BBC radio last week, IMF Managing Director Christine Lagarde said the secret government borrowing was “clearly concealing corruption”.

Numerous calls to finance minister Adrian Maleiane’s mobile phone this week went unanswered.

Reporting by Ed Cropley; Editing by Janet Lawrence and Catherine Evans

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