The Republic of Congo became the second African country this year to miss a Eurobond payment after a contractor alleging the government owes it money blocked the transfer of funds to debt investors.
Holders of the Central African nation’s $363 million of securities due in 2029 did not receive around $21 million in coupons and amortization payments by the end of July, when the grace period expired, according to Lutz Roehmeyer, a money manager at Landesbank Berlin Investment. Two other bondholders, who did not want to be identified as they aren’t authorized to speak about the matter, also said they hadn’t been paid.
The government paid the funds to the Eurobond trustee, Delaware Trust Co., in June but the transfer to the investors was blocked by a restraining order obtained by Commissions Import Export SA, Moody’s Investors Service said on July 28. The ratings company downgraded Congo to Caa2 from B3 and said a default was “imminent.”
“Bondholders knew there was no chance the order would be lifted by now,” said Roehmeyer of Landesbank Berlin, which manages $3 billion of emerging-market assets and has owned some of Congo’s bonds for about a year. “We are fairly optimistic we will get the payment. We’ll sit and wait. If it’s over in the next quarter or so, that will be fine.”
Commisimpex, as the contractor is known, is claiming 1 billion euros ($1.18 billion) for work dating back to the 1980s and has pursued litigation through U.S., French and U.K. courts over several years, according to Moody’s. A court hearing will take place in New York on Wednesday.
Calls and emails to Congo’s finance ministry weren’t immediately answered. Delaware trust didn’t respond to an emailed request for comment sent on Monday.
Congo’s securities lost 12 percent in July, making them the worst-performing Eurobonds in Africa, according to data compiled by Bloomberg. The price rose slightly to 70.8 cents on the dollar by 12:32 p.m. in London. The country’s finances have been under pressure since the 2014 oil-price crash reduced its export earnings.
“The government’s default on its sole Eurobond will exacerbate liquidity pressures that have been increasingly acute since the oil price shock,” Moody’s said. “Even if the trustee transfers the funds to the bondholders in the following weeks or months, there will remain a risk that future coupon payments could be blocked from reaching bondholders as long as the legal dispute between Commisimpex and the government continues.”
Mozambique is trying to restructure its external debts after it defaulted on a $727 million Eurobond in January.
— With assistance by Andre Janse Van Vuuren