They Must Really LOVE Tuna!

In 1975 Mozambique became an independent nation.  It’s one of the poorest on the planet, ranking 185th out of 187 in the United Nations Human Development Index.   According the the CIA “World Factbook” more than half their population remains below the poverty line.

Mozambique inherited a huge foreign debt load.  But thru an IMF sponsored debt forgiveness and rescheduling program, and strong GDP growth of 6-8% per year during the prior decade, national debt is now about 58% of their GDP.

This includes the $850 million that the “Mozambican Tuna Co” – a government entity – was able to secure from Credit Suisse and Moscow-based VTB Capital back in 2013 for the purpose of financing tuna fishing boats.   This so called “Tuna Bond” is, of course, guaranteed by the country of Mozambique.

“This is for fishing boats, for training centers, for spare parts and for patrol boats to protect fishing business and waters of Mozambique,” said Makram Abboud, VTB Capital’s chief executive officer for the Middle East and Africa. “We have always said it’s infrastructure to support the fishing industry. That means all infrastructure to reduce the risk of the boats being taken over by pirates the next day or stolen.”

OK.  That makes sense.  But here’s where the story starts to get a bit fishy.

The Mozambican Tuna Co paid about $272 million for 24 tuna boats and 6 patrol vessels from French company.  OK…good…they have $578 million left for….   Hmmm…what DID they spend the rest of the money on?

No one seems to know.  In 2013 Credit Suisse and VTB Capital declined to comment.  Nor would they disclose the fees they earned from the transactions.

If the story ended there, would just be another fish story.  But the stench gets worse.  Much worse.

An interest payment is due today and it appears Mozambique plans to default.   They have asked the Tuna Bond owners, which per Bloomberg includes AllianceBernstein, Aberdeen Asset Managers and ING, to “restructure” the debt.

And who have they hired to manage the restructuring process?  Per an article in yesterday’s London Financial Times, Credit Suisse and VTB Capital.

Yes, that’s right:  The very same lenders who funded and sold the original Tuna Bonds.  That same article quoted Makram Abboud of VTB Capital as saying VTB was “looking to achieve a fair compromise between the investors and the government of Mozambique”.

Wow.  This smells pretty bad to me.