LONDON (Reuters) – Holders of Mozambique’s sovereign dollar bonds said on Thursday there was no reason for the government to honour guarantees on loans given to state-owned firms, which they said should be liquidated to clean up the system.

Heavily-indebted Mozambique released on Saturday a forensic audit report into loans made to tuna fishing company EMATUM, security firm Proindicus and Mozambique Asset Management (MAM).

Reacting to the report, the Global Group of Mozambique Bondholders (GGBM) said in an emailed statement it was “evident that there is no basis — in either Mozambican or English law — for the Mozambique government to honor the purported guarantees of the Proindicus and MAM loans.”

“Disavowal of those purported guarantees and the liquidation of Proindicus, MAM, and Ematum is the appropriate restructuring that needs to take place to clean up the system,” the statement said, adding this would help to insulate the government balance sheet from further liabilities and help restore access to external financing for Mozambique.

The group – made up of holders of the 2023 bond – added it expected the government’s payment capacity to improve by about $850 million in the next five years thanks to an improving exchange rate and higher tax receipts.

(Reporting by Karin Strohecker, editing by Sujata Rao)