Moody’s lowers Mozambique, rates new debt Caa1

Moody’s Investors Service said it downgraded the government of Mozambique’s issuer rating to Caa1 from B3.

The outlook is stable.

The downgrade concludes a review for downgrade that began in December 2015 and extended in March after news of the Mozambique Ematum Finance 2020 BV notes exchange offer, Moody’s said.

The key driver behind the downgrade is the recent debt exchange orchestrated by the Mozambique government on the notes, which is considered a distressed exchange and a default on government-guaranteed debt, the agency said.

Moody’s said it views the default as a sign of diminished willingness on the part of the government to honor future debt obligations.

This outweighs the positive impact that the debt exchange has on external liquidity via medium-term improvement of the government’s external debt-amortization profile, the agency said.

Moody’s also assigned a Caa1 rating to the $726.5 million debt issued in exchange for the notes, which constitutes a direct obligation of the Mozambique government, Moody’s said.

The senior unsecured debt instrument ranks pari passu with the government’s other external debt, the agency said.

Moody’s also said it lowered the foreign-currency deposit ceiling to Caa2 from Caa1 and foreign-currency bond ceiling to B3 from B1, along with its local-currency country ceiling to B2 from B1.

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