LONDON, April 27 (IFR) - Investors in Mozambique's newly exchanged bond are speaking to lawyers about bringing a lawsuit against the deal's arrangers, Credit Suisse and VTB, after claiming that crucial information was withheld by the banks.
Mozambique exchanged government-guaranteed debt issued by Ematum, a tuna-fishing company, into bonds issued directly by the sovereign earlier this month.
Bondholders representing more than 80% of the US$850m Ematum bonds, which were due to mature in 2020, swapped them for US$726m of Mozambique bonds that come due in 2023. The exchange, which the banks say was undertaken to ease Mozambique's repayment schedule, was arranged by Credit Suisse and VTB.
But at the time of the exchange, investors said they were unaware that the two banks had previously made bilateral loans to state-owned Mozambique entities, guaranteed by the government, that are due to be repaid before the new bond matures.
Investors claim that by not clearly disclosing the loans, the banks have acted dishonestly.
At the moment, investors say that more has been disclosed about Credit Suisse's bilateral arrangements with Mozambique and so they have turned their attention more towards the Swiss bank until they find out further details about VTB's exposure.
"The day after the tender, Credit Suisse said there was another loan," said Marco Ruijer, portfolio manager at NN Investment Partners. "They never told us in the prospectus. It was perhaps not prudent of Credit Suisse to do a restructuring to extend the maturity from 2020 to 2023 when they themselves have a loan on the books which is maturing before 2023. It is a little bit murky of Credit Suisse."
The Credit Suisse loan is a US$620m facility to Proindicus, a state entity owned by the Ministries of Interior and Defence and the State Security and Intelligence Service, which comes due in 2022, according to three investors.
Meanwhile, a VTB loan made to another Mozambique entity was for US$520m, according to investors, though they do not know when it matures, with some claiming it comes due as soon as 2021.
"The fact that there is a maturity date before the bond and of around the same size as the bond that the banks have not clearly told the market is upsetting," said a second investor that holds the Mozambique notes.
The bond exchange prospectus does say that "an affiliate of Credit Suisse Securities (Europe) Limited has a lending relationship with a wholly-owned state entity whose obligations have the benefit of a guarantee from Mozambique".
The prospectus also outlines that there may be conflicts of interest involving the joint dealer-managers and other firms associated with the exchange, which includes dealing "in debt securities or other obligations of any type of Mozambique or state-owned entities."
But there is no mention of the size or maturity profile of the specific Proindicus loan.
A statement sent to IFR from the VTB press office said: "We do not believe that there was any undisclosed conflict of interest and we are not aware of any litigation. Mozambique has multiple financing arrangements with varying maturities with different creditors not all of which are known to us.
"VTB's lending relationships were clearly disclosed in the offer and exchange documents and in the financial press and every opportunity was made available to investors to ask further questions during the process."
Credit Suisse declined to make an official comment.
One investor said that Credit Suisse only disclosed the loan it made to Proindicus because there was a clause in the loan that said if Ematum undertook an exchange, Credit Suisse had to inform investors that they could accelerate payment on the Ematum bond.
Mozambique's first foray into the capital markets via Ematum was already swamped in controversy before investors found out about the loans.
Mozambique's previous government admitted to spending US$500m of the US$850m Ematum proceeds on defence, and not on the country's nascent tuna-fishing industry - the intended use of funds detailed in the prospectus.
Investors say they have created an informal group to explore taking legal action against the banks.
"I believe it was illegal and there are grounds for a lawsuit," said a third investor with a position in the Mozambique bonds.
The second investor said: "Mozambique will not be the target of the suit. It's going to be the brokers [Credit Suisse and VTB]. Some other investors have started seeking outside council."
The investor said he has not officially sought outside council, but has had informal conversations with legal experts about the options for taking action.
In total, 84 investment houses held the Ematum bonds before the exchange took place, including major emerging market players like BlackRock, Ashmore, and Aberdeen Asset Management, Thomson Reuters data show. (Reporting by Michael Turner; editing by Matthew Davies and Julian Baker)