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Vol 64 No 20

Published 5th October 2023


Secret deal won't end the tuna bond saga

Maputo won't disclose the cost of its deal with Credit Suisse and why it's abandoned its demand for damages

As with the US$2 billion hidden loans scandal that triggered Mozambique's serial financial crises over the past decade, all sides are trying to keep secret the details of the government's 1 October settlement with Credit Suisse, now owned by UBS Group, and the creditors of the $622m loan for the failed maritime security project known as ProIndicus. Under what became known as the ProIndicus Facility Agreement, Credit Suisse and other banks secretly lent the government hundreds of millions of dollars for what were classified as security projects and not subjected to any parliamentary scrutiny.

Credit Suisse and President Filipe Nyusi's government struck the deal on the eve of what was set to be a 13-week trial in London's High Court with Mozambique seeking some $1.5bn in damages from the bank, the Privinvest shipbuilders and 10 others for their role in the $2bn hidden loans or tuna bond scandal (AC Vol 64 No 18, Maputo may settle loans case & Dispatches 28/6/23, Maputo's ex-finance chief to face New York trial in hidden loan scandal). The settlement takes Credit Suisse out of the damages case although its officials may be called to the court as witnesses.

Neither side wants to disclose the details of the deal, for fear they have given too much away in the negotiations. From multiple sources in Europe and Mozambique, Africa Confidential has put together the outline of the agreement:

• Mozambique benefits from the cancellation of well over $550m of debt; this is out of a total of more than $900m owing for ProIndicus in principal, interest and penalties;

• Credit Suisse was owed $440m in principal, interest and penalties, but had already committed to cancel much of that; this includes $200m of Mozambique's ProIndicus debt, which Credit Suisse agreed to cancel in its 2021 deal with the United States Department of Justice;

• Sundry creditors (Mozambican and foreign) were owed between $330m and $350m after interest and penalties are added to the original principal;

• Both Credit Suisse and the Mozambique government walk away from the litigation and pay their own costs; (Maputo claims to have paid $80m to its legal advisors);

• No cash changes hands and the financial benefits are limited to the cancellation of Mozambique's debt;

• The deal only relates to the ProIndicus Facility Agreement which was meant to finance the building of a coastal patrol force and tuna fishing fleet with loans from Credit Suisse, Russia's VTB and some local banks;

• Credit Suisse was willing to write off all the amount owing on condition that Mozambique settled with all the creditors who had bought ProIndicus debt from Credit Suisse;

• Mozambique will pay less than $40m to its foreign creditors;

• Mozambique's banks – Moza Banco, BCI, and Millennium BIM – will be repaid around $130m in local currency, the metical, over five years.

UBS, which took over Credit Suisse in June, said in a statement on 1 October that the deal includes most of the other lenders: 'The parties have mutually released each other from any liabilities and claims relating to the transactions.'

But the terms of the deal embarrass both sides, which explains their refusal to discuss the terms. Financial sources say that UBS and Credit Suisse see it as too generous to Mozambique but as the best option given that it already had paid out $475m in fines to the US and British authorities in 2021 to settle multiple investigations into its role in the tuna bond scandal (AC Vol 63 No 22, Chang's extradition to the US looms).

For the Mozambique government the settlement is embarrassing for the opposite reason: it isn't generous enough. The government was seeking $1.5bn in damages from Credit Suisse and others; it is struggling to explain why it settled for little more than debt forgiveness for a corrupt deal.

Explaining the deal at a press conference in Maputo on 2 October, Finance Minister Max Tonela looked uneasy when pressed on the financial details. President Nyusi's opponents will try to exploit this as a political weakness. The prevailing suspicion in Maputo is that the government's case was weakened by its complicity in the corrupt arrangements behind the tuna bond scandal.

Bad time for bad news
The ruling Frente de Libertação de Moçambique (Frelimo) will face municipal elections on 11 October amid worsening economic conditions in the country. It's a bad time to announce what will be seen as a costly failure in a foreign court. The deal also means that the government has to pay its own expensive lawyers and other creditors in the tuna bonds scheme at a time when it is struggling to pay state salaries in cities such as Maputo, one of Frelimo's key support bases.

Another difficulty for the government is how it handles relations with VTB bank which was part of the tuna bond scandal although the original structure was put together by bankers from Credit Suisse. And the government didn't include VTB in the case for damages against Credit Suisse and Privinvest in London's High Court. Diplomats and civic activists say this is because President Nyusi doesn't want to implicate a Russian institution in a grand corruption case.

The government is quietly negotiating with VTB with as much as $150m at stake, we hear. On paper VTB was owed $110-130m of principal plus interest and penalties on the ProIndicus loan. The negotiations have been complicated by the liquidation of VTB's operations in London, from where its Mozambique operations were launched.

Mozambique's case against billionaire Iskander Safa and his firm Privinvest Shipbuilding Holding for its role in the scandal was due to start on 2 October, with Credit Suisse remaining involved – though no longer legally liable – despite the settlement. Now the opening of the case will be delayed until 16 October.

Neither side – Mozambique nor Privinvest – appear delighted by the prospect of the case being heard in an open court. Mozambique launched the action for damages against Privinvest alongside 11 others including Credit Suisse unaware that it could be compelled by the court to disclose documents which could implicate senior officials of the Frelimo government in corruption (AC Vol 64 No 6, Disclosure costs Maputo).

We hear that Mozambique and Privinvest were trying to agree an out-of-court settlement, but negotiations have broken down. A key pressure point on Maputo is whether President Nyusi can be called by the court to appear in the London case (AC Vol 62 No 22, Probe focus shifts to Nyusi).

Last month, the High Court upheld Nyusi's immunity as a foreign head of state, blocking an attempt to add him as a defendant against allegations that he was involved in a conspiracy at the heart of the tuna bond scandal. This allegation dates back to when Nyusi was defence minister a decade ago and would have had oversight on security contracts. Nyusi's vulnerability may leave him open to political pressure on the rumbling scandal, redoubling the need for a discreet out of court settlement with Privinvest.

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