Why Is Mara Delta Investing In Real Estate In Troubled Mozambique?

Why Is Mara Delta Investing In Real Estate In Troubled Mozambique?

Currency volatility and the slowing economy made some property developers rethink their investment strategies in Mozambique, but a long-delayed offshore gas project could be approved within months, and property fund Mara Delta plans to invest $110 million there.

Mara Delta owns commercial offices in Mozambique and recently bought into corporate accommodation, retail centers and warehousing, Africa Property News reported.

Listed on Johannesburg and Mauritius stock exchanges, Mara Delta also owns assets in Morocco, Zambia, Nigeria, Kenya and Mauritius.

Since 2014 the company has invested in six landmark commercial properties in Mozambique, collectively valued at $160 million, including buildings for U.S. firm Anadarko, South Africa-based insurance group Hollard and South African mobile group Vodacom.

Mara Delta plans to acquire more four properties in Mozambique and begin the second stage of development of its Anadarko building in the capital city of Maputo, according to Africa Property News.

“Real estate investment is a long-term play, and we certainly remain committed to the countries we invest in,” said Greg Pearson, head of development. “We are confident of the long-term growth prospects in Mozambique. The challenges that the country faces are not unique to emerging economies.”

In 2015, Mauritius-based property investment firm Delta Africa merged with Mara Diversified Property Holdings, the real estate arm set up by entrepreneur Ashish Thakkar’s Mara Group, in a $70.4 million deal that created a new company, Mara Delta.

The goal of the strategic relationship was to create a property powerhouse on the African continent, ePropertyNews reported in November. Mara Delta would become the largest pan-African property fund on the Johannesburg Stock exchange with $458.2 million in assets once the merger was completed, BusinessDayLive reported.

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The company is speaking to bankers for a seven-to-10-year Mozambique debt package to refinance in-country debt and fund the acquisition pipeline, Africa Property News reported.

Back in 2013, Mozambique was a symbol of Africa rising. Anadarko Petroleum Corp. and Eni SpA had discovered offshore gas fields so big that Standard Bank Group said Mozambique could turn into the next Qatar, Bloomberg reported. Growth since the end of the 16-year civil war in 1992 had averaged 7.4 percent:

Credit Suisse and Russia’s VTB provided financing to companies to help build the economy. The banks then went on to package and sell the debt to other investors hungry for high returns at a time when yields in the developed world were reaching record lows.

But gas exploration was delayed. Prices of gas, coal and aluminum exports sank, and Mozambique is in much more debt than most people realized, according to Bloomberg:

Mozambique’s borrowing produced a few surprises. A loan for $850 million, for instance, went to a new state-owned tuna-fishing company. What the offering documents didn’t say was that the government would also use some of those funds to purchase search and rescue and surveillance vessels. And two other loans from 2013 and 2014, totaling $1.4 billion, weren’t disclosed to parliament or to the IMF and were only discovered in April.

The IMF stopped a $286 million bailout loan signed in October. Managing Director Christine Lagarde in May accused the Mozambican government of using debt for “concealing corruption.” Western donors including the U.K. and Portugal have suspended about $500 million in aid for 2016, Bloomberg reported.

The crisis is visible on the main streets and in Maputo shopping centers. Many stores are vacant in Shopping 24, a multipurpose building opened in 2014.

“It’s difficult to do business,” said Abdul Suleimane, who sells computers, keyboards and other accessories, Bloomberg reported. “I don’t know how long we can hang on.”

A long-delayed offshore gas project with Italy’s Eni could be approved within months, sparking investments with the potential to transform one of the world’s poorest countries into a major energy player, Business Day Live reported.

Mozambique had one of the world’s biggest gas finds in a decade in 2010, but negotiations with Eni and U.S.-based Anadarko dragged on for years due to disputes over terms and concerns about falling energy prices, Reuters reported.

In recent weeks Eni struck deals with Mozambique’s government and contractors. A final investment decision could be made on Oct. 31, industry sources said.

Reserves in Mozambique’s Rovuma Basin amount to about 85-trillion cubic feet — enough to supply Germany, Britain, France and Italy for nearly 20 years, Reuters reported. It could take five years after the investment decision before gas production starts.

General Electric had been approved as a contractor. Samsung Heavy is in talks with Eni to provide a floating liquefied natural gas platform as part of a consortium with Technip and Japan’s JGC, in a contract worth about $5.4 billion.

Government negotiations over taxes and funding moved forward.

Eni has agreed to sell the gas to BP. “There has been significant progress in the last few weeks. It’s making investors a lot more optimistic the final investment decision isn’t too far away,” a banker involved in the deal told Reuters.

The last major sticking point was how Eni would finance the $11 billion development, sources told Reuters.

Eni is expected to raise billions of dollars by selling up to 20 percent of its Mamba gas field, and the operating rights, to Exxon Mobil.

Any sale by Eni would provide a much-needed capital gains tax windfall for the Mozambican government during a period of economic crisis and as it struggles to repay $1.35 billion in controversial foreign loans.

“There’s definitely been more urgency on the government side to get these gas deals moving,” one industry source said.