SEC Investigates Banks’ 2013 Sale of USD 850mil Mozambique Tuna Bond Offering as Country Attempts to Re-Structure Soured Debt Placement
Issuance intended for country’s tuna fishing industry, but used to buy military equipment instead
(WSJ) 28 December The U.S. Securities and Exchange Commission is investigating the sale of $850 million in bonds issued by Mozambique, the latest development in a scandal that is exposing the links between the country, three international banks and a defense contractor. The move by the SEC inserts the U.S. into a widening global investigation of Mozambique’s debt deals, which involved undisclosed loans and military purchases facilitated by the banks.
The ISIN code for the now-challenged 2013 sovereign debt issuance underwritten by Credit Suisse Group, BNP Paribas and Russian bank VTG Group is XS09693514503. The proposed new sovereign debt issuance is a dual tranche undertaking and includes ISIN XS1391003446 for the Unrestricted Global Note and ISIN XS1391003529 for the Restricted Global Note transaction. The offering document for the proposed restructuring transaction is available via this link
In 2015, global news media reported that the proceeds of the issue of the Existing Notes had been used in part to purchase defense equipment, rather than exclusively to purchase tuna fishing vessels and infrastructure operated by the state-owned corporation Empresa Moçambicana de Atum S.A. (“EMATUM”), which engages in commercial tuna fishing, as had previously been widely reported. According to the restructured note offering, to date, EMATUM has taken delivery of 24 tuna boats and will shortly take delivery of three trimarans to support its fleet. Subsequent press reports have also called into question whether all of the proceeds of the issuance of the Existing Notes were used for authorized or appropriate purposes. Per the disclaimers within the new offering prospectus, EMATUM has experienced net losses in recent periods and therefore the Existing Notes Issuer may not be able to service the Existing Notes in current or future periods.
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In 2013, when the above-noted underwriters sold the bonds to investors for the Mozambican state-owned company, the prospectus for the issuance indicated EMATUM needed money for tuna fishing. But months later, Mozambique’s government announced that the funds had also been used to buy military equipment. Bondholders were also unaware that Credit Suisse and VTB made $1.2 billion in undisclosed bank loans to other state-owned companies for additional military purchases until The Wall Street Journal reported on the deals in April 2016.
Mozambican President Filipe Nyusi recently agreed to an international audit of the deals by investigations firm Kroll, in an effort to regain access to frozen international aid. A report of the audit is expected in February, a person familiar with the matter said.
Mozambique used proceeds from the bonds and loans to purchase military and maritime goods and services from firms owned by holding company Privinvest, such as French defense contractor Constructions Mécaniques de Normandie. Privinvest is owned by Lebanese businessman Iskandar Safa. At the time of the deal, Mozambique’s ruling party was in heightened conflict with opposition forces.
To read the full story from the WSJ, please click here