Moody's Investors Service has upgraded the Government of Mozambique's long-term local-currency and foreign-currency issuer ratings to Caa2 from Caa3 and maintained the stable outlook. It also assigned a (P)Caa2 foreign-currency senior unsecured debt rating to the new bond that will be issued at the end of the month in exchange of the existing 2023 bond. Moody's has also affirmed the Caa3 foreign-currency senior unsecured debt rating on the 2023 bond.
The government announced on 9 September that bondholders have agreed to exchange Mozambique's sole bond, due in 2023 and in default since early 2017, against a new bond of longer maturity and lower coupon. At this advanced stage in the process, Moody's assumes that the bond restructuring will proceed. The issuer ratings upgrade reflects an incremental improvement in the still very weak credit profile of the government of Mozambique post-bond restructuring. It assesses that the restructuring will provide slight financial relief to the government, lower litigation risks and improve the prospects of Mozambique entering an IMF programme in the next few years that would ease government liquidity, drive credit-positive policies and enhance policy effectiveness.
The Caa2 ratings still indicate a high risk of default for private creditors given that government debt will remain very high and that access to funding will remain constrained. Economic and institutional weaknesses, especially in relation to public governance, will also remain strong credit constraints.
The stable outlook reflects Moody's expectation that the government will work towards securing an IMF programme. Although this will likely be a lengthy process, this will provide further incentives to the government to remain current on its coupon payments. The stable outlook also assumes that the government's access to funding will remain highly constrained but will not deteriorate further.
Concurrently, Moody's has raised Mozambique's long-term foreign-currency bond ceiling to Caa1 from Caa2. All other ceilings remain unchanged with the long-term foreign-currency deposits ceiling at Caa3, the long-term local-currency bond and deposit ceilings at Caa1 and the short-term foreign-currency bond and deposit ceilings at Not Prime (NP).
