London, March 24, 2025 (Lusa) - The financial rating agency Standard & Poor's has downgraded Mozambique's domestic public debt issues to Partial Default, due to delays in payments to creditors and changes in a debt issue.
"Mozambique has exchanged the bonds of a 3.7 billion meticais [€50 million] debt in local currency, maturing in March 2025, for bonds with a longer maturity and lower interest, maturing in March 2030," writes S&P, pointing out that "the continued recourse to these liability management operations, coupled with a history of delays in domestic debt payments, reflects Mozambique's fiscal and liquidity restrictions".
S&P considers that "this is a problematic transaction and is tantamount to a default" and says that it has therefore downgraded the rating "of the local issues from CCC- to SD", the initials for ‘Selective Default’, or partial default, in Portuguese.
With regard to foreign currency bond issues, which are usually more important to investors, S&P says it is maintaining the rating, not least because payments ‘remain modest’, but warns that "potential delays in gas projects and external financial assistance flows, together with an uncertain external financing outlook, increase the pressure on public finances" in this Portuguese-speaking country.
Mozambique exchanged bonds maturing this month, with an annual coupon of 16.43%, for new five-year bonds with an interest rate of 14.25%, according to S&P, which recalls that "in October last year the Mozambican authorities had already exchanged 5.7 billion meticais ( €82 million) of four-year bonds maturing in October 2024 for five-year bonds maturing in October 2029".
While investor participation in the first exchange was 90%, in this month's financial operation participation was 71%, says S&P, which adds that "the government is planning additional debt exchanges in May and September this year, along with some in 2026".
In the note, S&P states that this financial operation, which inevitably leads to a downgrade of the rating, "demonstrates the government's limited capacity to manage upcoming debt maturities in a context of tight liquidity".
Debt repayments in local currency will increase to 38.4 billion meticais ( €550 million), representing 2.4% of GDP this year and will be 37.1 billion meticais ( €536 million), around 2.1 % of GDP in 2026, which compares with 1.2 % of GDP in 2024, say the S&P analysts.
These "higher debt payments in local currency could increase the risks of late payments or lead to a more extensive restructuring of domestic debt", in a context where the local financial sector is already ‘highly exposed’ to Treasury issues, with more than 20% of the banking system's total assets in government bonds.
Until 2028, debt payments in foreign currency will remain "reasonably moderate", since until then there will only be annual coupon payments, with amortisation starting in three years' time.
Amortisation will be €208 million per year between 2028 and 2031, "before the start of production of the gas megaprojects, scheduled for 2030", says S&P, pointing out that Mozambique will have to pay US$81 million (€75 million) per year for the next three years, a figure that increases to around US$225 million, or €208 million, from 2028.
MBA/AYLS // AYLS
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