MercoPress. South Atlantic News Agency

Something smells rotten in Maputo: Russian bank suing Mozambique over US$ 2bn in loans

Russian bank VTB is suing a Mozambique state-owned company over US$ 535 million it extended as part a series of loans now at the centre of a US$ 2 billion debt scandal. An online court filing dated Dec. 23 shows VTB has lodged a lawsuit in Britain’s High court against the Mozambique state and Mozambique Asset Management, which borrowed the money from VTB as part of a costly project that U.S. authorities say was an elaborate front for a bribery and kickback scheme.

VTB had been in talks with the southeast African country over restructuring the loan, which the deputy head of VTB Capital’s legal department said in October represented a “significant exposure” for the bank.

“An agreed restructuring remains our preferred outcome but after 3 years of discussions with no tangible progress VTB must now consider all options available to it for a resolution,” VTB said in an emailed statement.

Mozambique’s Attorney General’s Office said it was waiting for formal notification of the lawsuit.

The court filing said the case relates to “general commercial contracts and arrangements” but no further information was available, other than that VTB Capital, the investment banking arm of VTB, is being represented by law firm Freshfields Bruckhaus Deringer.

The debt scandal has already sparked a series of court cases spanning London, New York and South Africa, ensnaring global investment bank Credit Suisse, three of its former bankers, Mozambique’s former finance minister and a past president’s son.

However this is the first time any of the cases have involved VTB, which is more than 60% owned by the state. It comes despite an increasingly close relationship between Russia and Mozambique, with President Filipe Nyusi visiting Russia twice last year and a series of agreements between Maputo and Moscow.

Credit Suisse and VTB provided or arranged a total of around US$ 2 billion for the project, encompassing tuna fishing, maritime security and shipyard development. Hundreds of millions of dollars went missing, while the benefits never materialized.

Mozambique did not disclose some of the loans, which were guaranteed by the state. The International Monetary Fund and other donors cut off support when they came to light in 2016, triggering a currency collapse and sovereign debt default.

It remains on the hook for the money, the largest chunk of which now sits in a restructured Eurobond. The country is trying to challenge the guarantee related to a US$ 622 million loan from Credit Suisse, also in a London court.

The Jubilee Debt Campaign, which calls for the cancellation of unjust or unpayable debts of the poorest countries, said Mozambique should not have to pay a cent towards the loans, which were guaranteed without the approval of Mozambique’s parliament.

“The loan guarantee was in clear breach of Mozambican law, and the lenders, companies and politicians involved should all be held to account for their role in the deal,” Sarah-Jane Clifton, the campaign’s director, said.