CS Credit Suisse Group

By Julie Wernau 

WASHINGTON -- The International Monetary Fund said on Friday it has suspended lending to Mozambique after determining that the African country had violated terms of its borrowing arrangement with the IMF by failing to disclose more than $1 billion in other loans.

The IMF said it had stopped a $55 million loan disbursement to Mozambique after it became aware of the unreported loans made by Credit Suisse Group AG and VTB Group of Russia.

The IMF approved in December a $283 million rescue loan package for Mozambique. The agreement with the IMF requires the southern African country to fully disclose all borrowings and to meet regularly with the multilateral agency to provide updates on its progress.

A Credit Suisse spokesman declined to comment. VTB and Mozambique officials couldn't be immediately reached to comment.

The IMF's announcement could cause some investors to steer clear of the country. Many rely heavily on information from the IMF when deciding whether or not to invest in developing countries such as Mozambique.

Antoinette Sayeh, director of the IMF's Africa department, said the organization investigated Mozambique's borrowing after an April 3 report in The Wall Street Journal, which detailed how Mozambique borrowed hundreds of millions of dollars through previously undisclosed loans from the banks.

The report revealed that investors who voted last month to exchange existing bonds due 2020 for longer-term bonds weren't told about the additional borrowing at the time of the vote. The price of Mozambique's new 10.5% bonds due 2023 fell to 87.50 cents on the dollar from 90.50 cents on the dollar after the IMF announced the loan suspension, an investor said.

"The undisclosed borrowing exceeds $1 billion and significantly changes our assessment of Mozambique's macroeconomic outlook," Ms. Sayeh said in Washington, D.C., at a Friday news conference for the IMF's spring meetings. "We are currently ascertaining in cooperation with the authorities, the facts regarding this borrowing."

IMF Managing Director Christine Lagarde said at the meetings Thursday that if the agency learns of corruption, it stops lending.

"We want this hanky-panky business to go away," Ms. Lagarde said.

The loans made by Credit Suisse and other lenders starting in 2013 materially affect the value of Mozambique's bonds, investors say. The undisclosed debt, in addition to the $850 million in bonds sold in 2013 for tuna fishing that was largely also used for military spending, represent a significant addition to the $6 billion in national debt reported at the end of 2012.

Investors said they wouldn't have purchased the bonds in the first place if they had known about the additional loans, which also were used for military equipment.

Following a December report from Mozambique, the IMF said it had immediately made a $117.9 million disbursement to stabilize the country, augment its reserves and help reduce poverty.

The IMF cited debt management among its chief concerns in Mozambique.

"A vigorous debt management strategy will be crucial to address the challenges of significant infrastructure gaps at a time when debt vulnerabilities have been rising," the IMF said in its report.

--Matt Wirz contributed to this article

Write to Julie Wernau at Julie.Wernau@wsj.com

(END) Dow Jones Newswires

April 15, 2016 15:12 ET (19:12 GMT)

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