Mozambique Oil & Gas: Bondholders demand a piece of the country’s future gas revenues

A group of Mozambique bondholders proposed the government pay them portions of future natural gas revenue as part of a restructuring of the nation’s Eurobonds, according to two people familiar with the discussions.

The so-called Global Group of Mozambique’s Bondholders (GGMB) formally made the proposal to the southeast African nation, which also includes cash-flow relief until 2023, said the people who asked not to be identified because the plan has not been announced publicly.

The two main points of the proposal include:

• Instruments linked to fiscal revenue from gas production with a sliding scale, in which the government will always retain at least 97% of revenue. This includes royalties.

• Cash-flow relief to the government between now and 2023, when the $727m Eurobonds fall due, of almost $1bn. This includes both principal and interest payments and would equate to about 80% of what would be owed over the next five years.

Mozambique’s Eurobonds due in 2023 gained as much as 1%, and were trading at 85.05c on the dollar by 6.37pm in London. The securities have climbed 3.4% since July 25.

Missed payments

The people declined to say when the proposal sets as the extended date for repayment of the principal amount, or for how many years the bondholders would receive a portion of gas royalties and taxes. The government forecasts $49bn in revenues over three decades from the first two projects, which will start producing gas from 2022 and 2023.

Two years ago, Mozambique announced it was seeking to restructure external loans worth about $2bn and has missed payments on all of them since, including the Eurobond. The restructuring proposal came after the government owned up to two other loans taken out by two state-owned companies for maritime security and ship-repair projects totalling more than $1bn, which were previously undisclosed. That resulted in the International Monetary Fund (IMF) freezing funding for the government, while a group of 14 donors also halted direct budget support.

The proposal says nothing about the other two loans, the people said. This was previously a sticking point as the Global Group of Mozambique’s Bondholders wanted favourable treatment that recognised they already restructured in 2016, when investors agreed to swap their loan to a state-owned tuna-fishing company into the Eurobond.

Fiscal constraints

A spokesman at Mozambique’s ministry of economy and finance did not immediately respond to an e-mailed request for comment. Lazard Frères SAS, the nation’s financial advisers for the restructuring, confirmed the ministry received a restructuring proposal from the group.

“The ministry is currently analysing the proposal with the support of its financial and legal advisers, Lazard Frères and White & Case, to assess if it achieves the objectives set out by the ministry in the March meeting with Mozambique’s commercial creditors in London,” it said by e-mail. “For any restructuring proposal to be acceptable, it must recognise and address the government’s fiscal and developmental constraints and debt sustainability objectives.”

Mozambique had in its March restructuring proposal said it wanted to write off 50% of the missed debt payments, while extending maturities of the debts and lowering interest payments until after it starts receiving gas revenue after 2023. Companies including Anadarko Petroleum and Exxon Mobil are planning mega-projects in the north of the country that will make Mozambique one of the biggest exporters of the fuel.

The Global Group of Mozambique’s Bondholders has previously said it has the backing of holders of at least 80% of Mozambique’s Eurobonds, including Franklin Templeton and New York-based hedge fund Greylock Capital Management.

Bloomberg