New York, December 17, 2015 -- Moody's Investors Service has today placed Mozambique's B2 government
issuer rating on review for downgrade. The review for downgrade
is driven by increased external pressures on the country's external
position, its currency and its foreign exchange reserves.
The review will focus on the risk that these pressures intensify and cause
further deterioration in the government's and country's external
debt metrics.
Moody's has also placed under review the B2 backed senior unsecured foreign-currency
rating of Mozambique EMATUM Finance 2020 B.V. ('the EMATUM
bond' which takes the form of a $850 million loan participation
note of which $774 million is outstanding, issued in September
2013 by a special purpose vehicle of the Mozambican fishing company EMATUM).
This change mirrors the review of the government of Mozambique's rating.
RATIONALE FOR THE REVIEW FOR DOWNGRADE
The Moody's review of Mozambique's B2 government rating was
prompted by greater than previously anticipated external pressures,
which result in diminished foreign exchange reserves and a weakening local
currency, the Mozambican Metical. The latter has depreciated
by 35% against the US dollar since the beginning of 2015.
The foreign exchange reserves of the Bank of Mozambique, the Central
Bank, were estimated at $2.5 billion in August 2015,
a similar level to the one posted earlier in the year, but sharply
lower than the levels recorded a year ago ($3.2 bn in August
2014). Meanwhile, the deterioration in the external debt
of both the government and the whole economy has continued, reaching
respectively an estimated 60% and 99% of GDP in 2015.
All government external debt is foreign (mostly US dollar) denominated.
As a result of the depreciation of the currency against the US dollar,
the burden of government's future external debt payments is increasing.
The rating agency also assumes that the whole servicing of the EMATUM
notes (denominated in US dollar) will fall on the government.
The capacity of the authorities to respond to these challenges is uncertain
because the pressures are strong and the room for maneuver limited.
Moody's notes that any external financing or additional foreign
direct investment could help alleviate the pressures. In the current
global environment however the authorities' capacity to attract
further FDI or secured long-term external financing is uncertain.
ELEMENTS OF THE REVIEW
During the review period, Moody's will evaluate the extent
to which external risks can build up further. In particular,
the rating agency will assess the strength of the external pressures affecting
the very large current account balance, its sources of funding and
the overall balance of payments as well as the authorities' ability to
manage the ongoing macroeconomic shock. The government strategy
for dealing with its own external debt service, which includes the
EMATUM notes, will also be part of the review process.
WHAT COULD MAKE THE RATING GO UP
An upgrade is very unlikely given the review for downgrade. However,
Moody's would conclude the review with a confirmation of the rating
if it expects external pressures to gradually ease in the coming years,
allowing foreign exchange reserves to be preserved. As such,
government access to external financing or increased foreign direct investment
would be supportive to the rating.
WHAT COULD MOVE THE RATING DOWN
The rating could come under additional pressure if Moody's were
to conclude that the deterioration in Mozambique's balance of payments
will continue, affecting the level of foreign exchange reserves.
In particular, should medium-term external pressures heighten
in Moody's view, the authorities' response will be key
to the assessment.
COUNTRY CEILINGS
Country ceilings remain unchanged. The long-term foreign
currency bond ceiling remains unchanged at B1, and the short-term
foreign currency bond ceiling is unchanged at NP. The long-term
foreign currency deposit ceiling is unchanged at B3, and the short-term
foreign currency deposit ceiling remains at NP. The long-term
local currency bond and deposit ceilings remain unchanged at Ba3.
GDP per capita (PPP basis, US$): 1,178 (2014
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 7.4% (2014 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.9%
(2014 Actual)
Gen. Gov. Financial Balance/GDP: -7.9%
(2014 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -34.6% (2014 Actual)
(also known as External Balance)
External debt/GDP: 68% (2014)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 14 December 2015, a rating committee was called to discuss the
rating of the Government of Mozambique. Other views raised included:
The issuer has become increasingly susceptible to external event risks.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Lucie Villa
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's places Mozambique's B2 government rating on review for downgrade
