By Boris Korby, Paul Burkhardt and Lyubov Pronina
The deal that helped one of the poorest nations raise $850 million and bond investors lock in rates three times higher than U.S. Treasuries is also spurring concern some of the money isn‚Äôt going where the buyers — and one of the underwriters — expected.
Two months ago, Credit Suisse Group AG (CSGN) and VTB Capital Plc (VTBR) financed a flotilla of tuna boats for Mozambique, then packaged the debt into notes for overseas investors. It turns out the fleet also includes anti-pirate patrol boats, according to the French Foreign Trade Ministry. They are capable of being equipped with 20mm cannons and military drones, according to Stratfor, a global security advisory firm. Credit Suisse is adamant that its funding wasn‚Äôt used for armed boats.
‚ÄúThe documents mentioned only fishing boats and some training costs,‚Äù said Marco Ruijer, who helps oversee about $8 billion in emerging-market bonds at ING Investment Management in The Hague and bought a piece of the debt from VTB Capital because the investment promised such high returns. The notes are backed by the African country, which is developing deposits of coal and gas.
As central banks keep interest rates at historic lows, investors are trading transparency for higher payouts. Tanzania, with an unrated $600 million private deal, and Angola, with a $1 billion transaction structured in a similar way to Mozambique‚Äôs, also made debuts in the international debt market in the last 15 months without disclosing details that buyers of lower-paying Eurobonds would require.
Mozambique‚Äôs maiden voyage in international debt markets involved the government setting up Empresa Mocambicana de Atum SA, or Mozambican Tuna Co., in August. By Sept. 27, the company had secured loans from Credit Suisse and Moscow-based VTB Capital for a combined $850 million — equal to 6 percent of everything produced in the country last year.
The banks sliced the loans into smaller chunks and marketed the loan participation notes to investors to fund ‚Äúfishing infrastructure,‚Äù according to the prospectuses. The securities aren‚Äôt listed on any exchange.
Mozambican Tuna, called EMATUM in loan documents, borrowed $500 million from Credit Suisse and $350 million from VTB Capital without meeting money managers or listing the names of the company‚Äôs chief executive officer or directors before the sale. There was no legal requirement that they do so. Moody‚Äôs Investors Service rated the loan participation notes B1, four levels below investment grade. The notes, which mature in 2020, were priced to yield 8.5 percent, about six percentage points more than Treasuries.
The Credit Suisse and VTB Capital prospectuses say that EMATUM would also use the money for ‚Äúgeneral corporate purposes.‚Äù
At no time has Credit Suisse provided financing to Mozambique, any entity in Mozambique or any other entity that includes the procurement of weapons, and the borrowers and boat contractors have confirmed to Credit Suisse that ‚Äúthere are no weapons or combat systems of any kind on any of the vessels being built under the EMATUM contract,‚Äù Adam Bradbery, a spokesman in London for the Zurich-based bank, said in an e-mailed statement. Credit Suisse has asked that they confirm that information publicly, he said.
Makram Abboud, VTB Capital‚Äôs chief executive officer for the Middle East and Africa, said part of the infrastructure referred to in the VTB prospectus was protection for the fishing boats.
‚ÄúThis is for fishing boats, for training centers, for spare parts and for patrol boats to protect fishing business and waters of Mozambique,‚Äù Abboud said in an interview. ‚ÄúWe have always said it‚Äôs 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.‚Äù
Calls to EMATUM and to the Mozambican fishing, defense and foreign ministries to independently confirm the patrol vessels would be free of weapons weren‚Äôt returned.
The Mozambique company is paying 200 million euros ($272 million) for 24 tuna boats and six patrol vessels from Cherbourg, France-based Constructions M√©caniques de Normandie SA, known as CMN, French Foreign Trade Ministry spokeswoman Perrine Duglet said in an Oct. 31 e-mail. A private security company will manage the patrols, Mozambican Defense Minister Filipe Nhussi said at an Oct. 12 army graduation ceremony in the capital of Maputo.
Credit Suisse and VTB Capital representatives declined to comment on where the rest of the loan money would go. They also declined to disclose fees earned from the transactions. Officials from CMN and its parent company, Abu Dhabi Mar LLC, declined to comment.