How Mozambique Financed Its Anti-Piracy Patrol Boats As Tuna Fishing Fleet

How Mozambique Financed Its Anti-Piracy Patrol Boats As Tuna Fishing Fleet

From Bloomberg

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’t 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’t used for armed boats.

“The documents mentioned only fishing boats and some training costs,” 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’s, 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’s 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 “fishing infrastructure,” according to the prospectuses. The securities aren’t 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’s chief executive officer or directors before the sale. There was no legal requirement that they do so. Moody’s 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 “general corporate purposes.”

Written by Boris Korby and Paul Burkhardt| Read more at Bloomberg