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Comment by Riccardo Orcel, Deputy CEO of VTB Group, Head of VTB International for IFR

13 January 2017
IFR
HSE signs €220m financing

Electricity producer and trader Holding Slovenske elektrarne has signed a €220m long-term financing arranged by VTB Bank Austria. BNP Paribas, Raiffeisen Bank, UniCredit and NLB Bank were mandated alongside VTB.

“The financing arranged by VTB has allowed the company to extend its maturity profile and meet HSE Group’s refinancing objectives set for this year,” said Riccardo Orcel, deputy CEO of VTB Group and head of VTB International. HSE is the largest state-owned power generation company in the local market, with revenue of €1.3bn.

Mozambique's US$727m 2023 bond has fallen around five cents in the dollar to the mid-50s this week as investors fear the African country, which last October had called for a debt restructuring, might not pay a US$60m coupon due this Wednesday, January 18.

Last October's presentation on possible debt restructuring paths, produced by Mozambique's financial adviser Lazard, had outlined the country had over US$1bn in foreign currency reserves. But originally Lazard had said Mozambique wanted to complete restructuring negotiations by the end of 2016.

Creditors, including Franklin Templeton, Alliance Bernstein and Greylock, have since formed a group, advised by Charles Blitzer, and have resisted entering negotiations until the International Monetary Fund set out more independent details of the country's finances.

The delays mean the coupon was less likely to be paid, argued some. "The government will think very carefully about whether to pay it. Why would you pay the money if you are going to be in restructuring talks anyway?" said Stuart Culverhouse, economist at Exotix Research.

But one trader said he would have expected the price of the bonds to have fallen more if the coupon was at risk.
"The fact that the price hasn't moved that much implies some people think coupon will get paid. Will the latter sell the bonds if the coupon doesn't get paid as reality dawns upon them?" he said.

According to the bond prospectus, there is a 15-day grace period on the coupon, giving the country effectively until early February before defaulting. By that stage the IMF, which carried out a mission in December, may have issued its resulting report.

On Thursday IMF spokesman Gerry Rice did not give any specific date for any publication. "We have no update on Mozambique but the situation is something we continue to monitor. We are fully engaged and are well on the way to remedying the issue of formerly undisclosed loans," he said.

The IMF pulled out of existing programmes with the country earlier last year, shortly after it emerged that these additional loans of US$1.4bn had been taken out by Mozambique state enterprises.

That happened shortly after the bondholders in Ematum, the country's tuna fishing company, agreed to swap their 2020 notes paying 6.305% for the sovereign's 2023 notes with a 10.5% coupon. That was organised by Credit Suisse and VTB Capital, who themselves have separate loans with the country.

In late December, the US Securities and Exchange Commission said it would investigate the initial sale of these bonds in 2013 by these banks and BNP Paribas.

At the time both Credit Suisse and BNP Paribas declined to comment. VTB said it had executed the transactions with Mozambique state-owned companies "in compliance with appropriate policies".

Financial regulators in the UK and Switzerland are also looking at Credit Suisse's and VTB's roles in the deal.
The 2023 bonds are a small, but expensive, part of Mozambique's overall indebtedness. As well as the commercial loans from the above banks and US$4.14bn of multilateral loans there are also significant bilateral loans of US$4.26bn from undisclosed countries.

"There are lots of different acts in this particular drama," said Culverhouse.

Lazard declined to comment.

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