Moody's Investors Service has downgraded Government of Mozambique's issuer rating to Caa1 from B3, outlook stable. This concludes the review for downgrade initiated on 17 December 2015 and extended on 15 March 2016 after the announcement of the Mozambique EMATUM Finance 2020 B.V. (EMATUM) notes (WR) exchange offer.
The key driver behind the issuer rating downgrade is the recent debt exchange orchestrated by the Mozambique government on EMATUM notes, which Moody's considers to be a distressed exchange and therefore a default on government-guaranteed debt. Moody's views the default as a sign of diminished willingness on the part of the government to honour future debt obligations. This outweighs the positive impact that the debt exchange has on external liquidity via the improvement, in the medium-term, of the government external debt amortisation profile.
Concurrently, Moody's has assigned a Caa1 rating to the $726.5 milion debt issued in exchange for the EMATUM notes, which constitutes a direct obligation of the Mozambique government. The senior unsecured debt instrument ranks pari passu with the government's other external debt.
The Caa2 rating on the EMATUM debt has been withdrawn.
Moody's has also lowered the foreign-currency deposit ceiling by one notch to Caa2 from Caa1, and the foreign-currency bond ceiling by two notches to B3 from B1. Moreover, the local-currency country ceiling has been lowered by one notch to B2 from B1.
