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A Mozambican bond offer so good, it’s bad

Summary:
What’s the biggest coupon you can get lending US dollars to an African government south of the Sahara these days? Ghana’s bond due 2030 of course. It will pay 10.75 per cent starting from its first coupon date next month. And what will investors get for agreeing to swap Mozambique’s government-guaranteed tuna debt for its own sovereign paper? Ever so slightly less. The new bonds, to replace 0m of notes issued by Ematum, the state-backed fishery with a sideline in seriously tooled-up maritime security, will have a 10.5 per cent coupon, according to pricing terms on Thursday. It’s almost like the Mozambican government doesn’t want to be seen as the riskiest credit on the continent. In any case, the size of the coupon means something pretty interesting. Ematum’s creditors may well get away without losing money in economic terms. Remember the new bonds would be issued at a price of 80 cents (which is about where Ematum notes are priced in the market now). If the market priced them at a yield of 14 per cent or less after issue, then, per this chart compiled by Exotix this week, the bondholders avoid a haircut to the present value of their claim. (Click to enlarge) So what’s the problem? (Even if bondholders really wanted 12.

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What’s the biggest coupon you can get lending US dollars to an African government south of...

Joseph Cotterill
Joseph is the FT’s Southern Africa correspondent based in Johannesburg, after previous stints as private equity correspondent and on the Lex column. But he still writes for Alphaville, which he joined way back in March 2010 — right in the middle of the Greek bailout crisis. He has been very interested in all things credit and sovereign debt ever since…

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