Mozambique Pips Senegal to Become Most Distressed African Credit

8dnvfwh(6qbg1fai49lm1tio_media_dl_1.png JPMorgan Chase & Co

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(Bloomberg) — A surge in Mozambique’s sovereign yield premia versus Treasuries has seen it overtake Senegal to become the most distressed sovereign issuer in Africa. 

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As the war in Iran puts fresh strain on Mozambique’s already fragile finances, its yield spread, the extra premium which investors demand to hold its hard currency debt over Treasuries, rose to 1,473 basis points on Friday, according to data from a JPMorgan Chase & Co index, well above the 1,000 basis-point level that denotes distress. 

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Senegal’s spread was at 1,423 points, falling below that of Mozambique for the first time since November. 

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The selloff in Mozambique’s dollar bond due 2031 extended on Monday into a 13th consecutive session. The $900 million note has plunged about 11 cents since the start of the conflict, and traded at 74.64 cents on the dollar as of 11:45 a.m in London. The yield at 16.16%, effectively keeps it shut out from international debt markets.

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As the war persists, investors have steadily repriced emerging markets risk, especially for energy-importing nations. In Africa, the average dollar-bond spread over Treasuries now stands at 387 basis points, a six-month high. The spread has widened by 37 basis points in March.

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Mozambique’s spread, however, has blown out by more than 400 basis points this month. While it hosts some $50 billion in gas projects, these have faced delays, forcing it to rely on fuel imports.

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The challenge for investors in Mozambique is that they “are buying a potential future LNG output which is far and is postponed every year,” said Romain Bordenave, portfolio manager at Edmond de Rothschild Suisse SA. Despite the sharp fall in the dollar bonds’ price, he would wait for a better entry point before buying, he said. 

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Meanwhile, S&P Ratings said in a report Friday, that Mozambique’s foreign exchange shortages could worsen due to the conflict and the closure of a key aluminum smelter. Also, the government’s ongoing local debt exchanges are “tantamount to default,” it added.

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While S&P expects Mozambique to continue making payments on its eurobond, it said this would hinge on progress on its gas projects.  

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