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Venezuela debt restructuring proposal seen as default

3 Nov 2017, 2.04 pm GMT

Venezuela debt restructuring proposal seen as default

Caracas, 3 November (Argus) — The financial community is responding to Venezuelan president Nicolas Maduro's announcement yesterday that the Opec country's foreign debts will be restructured as an effective default, four bond traders and asset managers told Argus overnight.

"I have decreed a refinancing and restructuring of the foreign debt and of all payments by Venezuela," Maduro said late yesterday in nationally televised remarks.

Maduro said that today state-owned oil company PdV would pay $1.1bn owed on a PdV 2017 bond that matured yesterday. He did not mention the 8.5pc interest owed on the bond, but two traders said it appears Venezuela will not pay over $800mn of accrued interest on nine bonds that came due last month.

The restructuring proposal is not considered credible, partly because the two top Venezuelan officials whom Maduro named to coordinate the process are subject to US individual sanctions. Vice president Tareck El Aissami will head a commission to oversee the planned debt restructuring. As newly designated economy minister, former PdV chief financial officer Simon Zerpa will play a direct role in the restructuring talks.

The appointments are widely seen as an effort to get bondholders and other creditors to pressure Washington and other governments to lift sanctions. In August, the US government imposed financial sanctions on Venezuela, effectively thwarting any effort to issue new debt. Venezuelan payments through and into US banks have been delayed while bankers and lawyers check to make sure their institutions are not violating the new sanctions regime.

PdV's combined outstanding sovereign and PdV bonds total about $70bn.

But Venezuela's total combined government and PdV debt was about $184bn as of mid-2017 including $112.3bn of central government debt and about $71.5bn of total PdV debt, according to Venezuelan central bank data.

Venezuela's outstanding debts to China and Russia total about a combined $37bn that the central bank lists as central government debt that PdV has been repaying with crude and refined products deliveries. The central government also owes private-sector Venezuelan and foreign companies with Venezuelan operations over $14bn in commercial debt, including $3.8bn owed to over 20 airlines since fourth quarter 2012.

PdV owes its contractors and suppliers almost $18bn, and but also owes a further over $13bn in unspecified "other debts" that include joint venture profits its foreign partners have been blocked from repatriating due to Venezuela's dismal financial situation. The central bank's international reserves currently total about $9.8bn, of which less than $600mn are cash, a bank official told Argus.

"Our intention is to continue complying with our commitments, but we want the financial persecution of banks and international organizations against Venezuela to cease," Maduro said.

A Caracas-based bond trader that deals exclusively in sovereign and PdV bonds told Argus that Maduro's remarks appear to be a veiled threat that Venezuela could refuse to engage in any formal restructuring talks until the US suspends financial and individual sanctions against PdV and over three dozen senior Venezuelan officials, including Maduro himself.

Venezuela's government is required constitutionally to secure the national assembly's approval before launching formal debt restructuring talks. The elected opposition-controlled national assembly has been effectively dissolved since the 30 July election of a constituent assembly (ANC), seen as an arm of the ruling United Socialist Party (PSUV).

Maduro will likely go through the motions of seeking the ANC's approval to restructure Venezuela's debt.

The US and at least 40 other countries condemned the ANC election as illegitimate and unconstitutional.

It is also possible that the neutered national assembly controlled by the opposition will signal its support for a debt restructuring, as its president Julio Borges called on Maduro earlier this week to renegotiate the country's foreign debts to prevent a humanitarian crisis.

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