The tender offer was in place to swap bondholders from state-owned tuna fishing company Ematum into Mozambique sovereign debt.
The restructuring process has been blighted by mistakes from the early stages, which has not endeared Mozambique to investors — at the start of the process, the government accidentally said it would restructure the bonds when it meant reprofile.
That the Government of Mozambique held, but had not disclosed, some $788mn of bilateral agreements with creditors came to light only after a Standard & Poor’s downgrade triggered the disclosure of the additional credit facility in the middle of the exchange offer.
Investors were of course outraged that this facility had not previously been made public. By the time it was exposed, over 80% of investors had already agreed to the offer.
But the loan had already been included in the government’s widely available loan ratios. And no government is expected to detail its every outstanding debt before bringing a bond to market.
In addition, bankers on the deal argue that several investors knew about the facility, and had plenty of time to discuss it with the issuer. The rest had five days to decide whether to revoke their agreement. Had they fully ticked all the due diligence boxes, this would surely have been enough time in which to make one or two numerical adjustments.
And after the fact, not one investor changed their mind. Despite protestations about lack of time and messy disclosures and hand wringing that the sovereign has damaged its reputation in the capital markets, the offer on the table, it seemed, was too good.
Investors were asked to swap the government-guaranteed Ematum 2020, an amortising note, for a likely seven year Government of Mozambique bullet maturing 2023 — in other words an explicitly guaranteed piece of debt for a direct obligation. There was no haircut and the new notes are set to pay a coupon of 10.5%, a chunky step up from the original 6.305% the Ematum 2020s paid. In addition, all participants in the exchange were paid the full ‘early bird special’ of 105% of the value of their original bonds.
Given the widely reported reputational risk surrounding the Ematum bond — lots of the bond proceeds did not seem to be much involved in tuna fishing — investors should be glad to be swapping out quickly and quietly.
They could hardly ask for more. In fact, when Emtaum printed the original bond in 2013, this is exactly what they did ask for — bankers said Ematum at that time paid a premium for the fact that it wasn’t straight Mozambique debt, and said investors were largely buying it because buying sovereign paper was not an option.
The communication throughout this process may have been shoddy, and the docs perhaps left something to be desired, but this is after all an emerging markets investment. Investors are participating with their eyes wide open to these risks, and reaping the rewards in spread terms
All things considered, despite their ire, investors were given a decent deal in this exchange. It’s time they stopped grumbling.