Update: Shortly after publishing this report, the government announced a 30-day extension to the settlement date (ie on or around 30 October).
Mozambique’s new restructured bonds are due to be issued next week. This follows the achievement of the necessary support in the consent solicitation that closed on 6 September, with settlement expected on 30 September, although final closing was conditional on local approvals.
The terms of the new bond were announced in May (see here) and we summarise them below (Table 1). The existing MOZAM 10.5% 2023 bullet will be exchanged into a new step-up amortising bond maturing in 2031. The new Mozambique bond will increase in size from US$726.5mn (nominal) to US$900mn (nominal) given capitalisation of most of the PDI.
Investors will ask, where should the new bond trade? The new bond is indicated at c84.5/87.5 (86.0 (mid)) in the when and if issued (Wifi) market. We think this corresponds to a yield of 9.3%, according to our bond calculator (excluding cash at closing; Table 2). The existing MOZAM 2023 bond is indicated at 107.4 (mid), ie per unit of existing principal.
We think c8.5-9.0% for the new bond would be appropriate, given its comps and where other bonds trade. However, we think some premium is justified at this stage, pending the outcome of the elections next month and greater visibility on IMF programme discussions, which we think are essential to help re-establish policy credibility. Gas, of course, provides a backstop, but that is still some years away. We retain a Hold on Mozambique.