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Mumbai - Fitch Ratings cut Mozambique’s credit to CC, indicating that a default of some kind is probable, after the southern African nation last month disclosed more than $1bn of previously hidden debt.
The rating was cut by one notch from CCC, according to a statement e-mailed by the company on Monday. The review was brought forward by five months because of a “material change in the creditworthiness of the issuer," it said.
"The disclosure of hidden public debt has revealed significant short-term repayment obligations, which could precipitate a near-term credit event," Fitch said.
Mozambique’s government in April admitted to the existence of $1.4bn of undisclosed loans to the Interior Ministry and state-owned security companies Proindicus and Mozambique Asset Management, or MAM. While Proindicus made a $24m interest payment on its $622m facility on March 21, Finance Minister Adriano Afonso Maleiane said last week MAM won’t be able to honor its $178m interest payment due May 23.
The authorities have acknowledged that the debt owned by the companies is guaranteed by the government, Fitch said.
MAM, whose $535m loan is one of those the government hid from creditors, is negotiating with lenders to restructure the debt, Maleiane said.
'Credit event'
"Even if the authorities are able to make scheduled repayments of the sovereign-guaranteed debt of state-owned companies in the near term, the potential restructuring of the MAM debt being considered by the government could precipitate a credit event," Fitch said.
"In that event, if we judged a restructuring to constitute a distressed debt exchange, we would downgrade the Mozambique sovereign rating to Restricted Default."
Since the discovery of the undeclared loans by the International Monetary Fund, European nations and multilateral lenders have withheld funding, while other rating companies have also downgraded Mozambique’s credit.
Its currency has fallen 14% against the dollar this year, after depreciating 28% in 2015.
The yields on Mozambique’s $726m of bonds due January 2023 rose six basis points to 16.295% on Monday. They closed at a record high of 17.12% on May 19, according to data compiled by Bloomberg.
Mozambique’s annual public debt servicing costs are estimated to have almost doubled to about 4.5% of gross domestic product because of the hidden loans, according to Fitch.
