Ex-Mozambique finance minister denied bail in South Africa

JOHANNESBURG/MAPUTO (Reuters) - Former Mozambican finance minister Manuel Chang was denied bail by a South African court on Friday, meaning he will remain in custody for now pending an extradition hearing over charges relating to $2 billion (£1.56 billion) in fraudulent loans.

One of his legal team, who asked not to be identified, indicated they would appeal against the decision, to try to have him released from the Johannesburg prison where he has been held since Dec.29, when he was arrested at the request of the United States. He has denied all the charges.

Both the United States and Mozambique are seeking Chang's extradition, with a hearing on the matter scheduled to begin on Feb. 26.

The charges relate to $2 billion in loans guaranteed by the Mozambican government, which it failed to disclose, signed off by Chang during his term as finance minister.

The court decided Chang should not be granted bail because it deemed him a flight risk, the lawyer said.

If extradited to the United States for trial, the case could lift the lid on details about Mozambique's debt scandal, with potential implications for senior members of its ruling party ahead of elections in October.

Mozambique's acknowledgement of the undisclosed borrowing prompted the International Monetary Fund and foreign donors to cut off support, triggering a currency collapse and debt crisis that Mozambique is still struggling to recover from.

Five people including the ex-head of Mozambique's intelligence services and the chairman of three state-run firms connected to the debt scandal were arrested in Mozambique, a police source told Reuters on Friday.

The source said those arrested also included the ex-private secretary to former president Armando Guebuza, and that some possessions, including luxury cars, had also been seized.

Antonio Carlos do Rosario, former director of Mozambique's intelligence unit, was arrested alongside Teofilo Nhangumele, the chairman of state-run Proindicus, Ematum and Mozambique Asset Management (MAM), the police source said.

Reuters was not able to immediately contact representatives of the individuals named by the source and local media as being arrested. None of the three companies have websites or publicly listed contact details and the individuals could not be found via social media to contact for comment.

Mozambique news outlet Folha de Maputo quoted Nhangumele as saying he had a clear conscience, in an article dated Feb. 14.

The three state firms issued a total of over $2 billion in loans between 2013 and 2016, according to the U.S. indictment on the matter, backed by the Mozambican government and signed off by Chang.

Ematum, a government-owned tuna-fishing company, issued an $850 million bond to finance fishing infrastructure.

The fishing project, initially touted as self-sustaining, severely underperformed, and $500 million of the money was subsequently designated for maritime security and reallocated to the defence budget.

Proindicus, a state-owned company tasked with managing maritime security, borrowed $622 million, and MAM borrowed $535 million. The loans were not disclosed until April 2016.

(Reporting by Emma Rumney in Johannesburg and Manuel Mucari in Maputo; Writing by Emma Rumney; Editing by Alison Williams)