Swiss and UK watchdogs quiz Credit Suisse over Mozambique debt

By Joshua Franklin and Wendell Roelf

ZURICH/CAPE TOWN (Reuters) - Financial watchdogs from Switzerland and Britain are looking into Credit Suisse's (CSGN.S) involvement in Mozambique, where heavy undisclosed sovereign borrowing has pushed the country close to default.

Swiss regulator FINMA said it was in touch with the Zurich-based bank over the Mozambique issue, while the UK's Financial Conduct Authority (FCA) is looking at the role of Credit Suisse and Russian lender VTB (VTBR.MM), according to a source familiar with the situation.

Credit Suisse and VTB have both been active in the southern African country, arranging loans for state-owned firms as well as helping with a eurobond issue.

Credit Suisse declined comment. VTB said it had been open and transparent with the regulator on the Mozambique transaction and was not aware of any investigations.

In April, the Mozambique government belatedly disclosed as much as $1.35 billion (£0.92 billion) of sovereign borrowing arranged without parliamentary approval, as required by law.

This followed a rescheduling deal on an $850 million eurobond launched in 2013 that Mozambique was struggling to repay. Since then, a state-owned company has missed a repayment due last month on a $535 million loan arranged by VTB.

As this loan carries a sovereign guarantee, Mozambique risks being declared in default unless it can negotiate another rescheduling agreement.

A spokesman for FINMA told Reuters on Tuesday it had contacted Credit Suisse over its engagement with Mozambique. "We are aware of the issue and are in contact with the bank over this matter," he said on Tuesday, declining to give any further details.

Mozambique's problems are casting a shadow over investment in the country, one of the world's poorest, which had been picking up as banks were attracted to energy projects following recent gas discoveries.

South Africa's Standard Bank (SBKJ.J) said on Tuesday that it is to pause work on power sector projects in Mozambique because of its sovereign debt problems.

"At the moment we are all cautious when we do new projects in Mozambique," Rentia van Tonder, Standard Bank's head of renewable energy, power and infrastructure told Reuters on the sidelines of an African oil conference. "We do have sovereign limits and certain guidelines we look at, and our country risk team is currently reviewing our approach to Mozambique."

Standard Bank, which was considering coal projects as well as an expansion to the Cahora Bassa hydroelectric scheme in Mozambique, was the lead arranger on the 100 megawatt Gigawatt independent power producer project.

Separately, a source told Reuters on Monday that the British FCA was looking into the role played by both Credit Suisse and VTB in Mozambique.

VTB said debt figures had been published when the eurobond was launched. "As we previously said, the total public debt number disclosed in the prospectus of the issued sovereign eurobond was inclusive of all outstanding direct and publicly guaranteed government debt, as confirmed to us by Ministry of Finance of Mozambique," the Russian bank said.

VTB has held talks with Mozambique on the $535 million loan it arranged in 2014 for state-owned Mozambique Asset Management after a $178 million repayment due on May 23 was missed.

Mozambique's foreign debt has ballooned in the last four years, largely due to expectations it was set to become a major natural gas producer.

However, those expectations are now being shown to be wildly premature, leaving the country with a foreign debt burden equal to $400 per head - only a fraction below the International Monetary Fund's $435 annual per capita GDP estimate.

(Reporting by Joshua Franklin and Oliver Hirt in Zurich, Alexander Winning in Moscow and Ed Cropley in Luanda; Editing by Michael Shields, Alexander Smith and David Stamp)