Sanctions-wary lawyers jet to Caracas for debt talks
Bogota, 10 November (Argus) — A controversial 13 November meeting with bondholders summoned by the Venezuelan government to discuss debt restructuring will assemble little more than a handful of lawyers who are wary of violating US financial and targeted sanctions on the Opec country, people close to the impending talks tell Argus.
The meeting with officials from the Venezuelan government and its state-owned oil company PdV is not expected to yield an economic plan that would reassure creditors representing some $70bn in sovereign and corporate bond debt.
But the US Treasury late yesterday issued new guidance that could give negotiators more room to maneuver. US holders of existing Venezuelan bonds may participate in negotiations over their restructuring, the US Treasury said.
The Treasury reiterated that US bondholders are generally prohibited from dealing with persons on the US sanctions list. Two of the commission members negotiating debt restructuring are on that list: executive vice-president Tareck El Aissami and finance minister and PdV chief financial officer Simon Zerpa. Venezuelan president Nicolas Maduro, who is promising presidential elections next year, is also on the sanctions list.
Existing US sanctions prevent Venezuela and PdV from issuing new debt with maturity greater than 30 days and 90 days, respectively. The Treasury said it may consider applications from US bondholders to restructure the existing obligations in a way that would otherwise run afoul of the prohibition on new debt — but only if the transaction is approved by the opposition-controlled national assembly.
The assembly, which was elected in December 2015, was effectively disbanded following the 30 July election of a national constituent assembly (ANC) controlled by the executive branch. That election was widely deemed abroad as a sham, and the ANC is not considered a legitimate legislative body.
But in an unexpected political twist yesterday, national assembly president and opposition leader Julio Borges called for "serious dialogue" with the government, suggesting that the assembly could approve a future debt agreement.
Earlier talks between the government and the some members of the fractured opposition, which took place in the Dominican Republic, fell apart.
The Treasury guidance coupled with the opposition initiative appears to undermine a potential propaganda victory for the Maduro government, which will have a harder time blaming Washington and its domestic opponents for thwarting a debt deal.
But even in the absence of the US sanctions, there is little faith that Caracas is willing or able to assuage creditors with an economic reform plan, because the Venezuelan officials in charge have little or no economic experience, and because the government has refused to engage with International Monetary Fund, which normally steps in to coordinate a rescue plan.
At home, the Venezuelan oil-based economy is on the doorstep of hyperinflation. Shortages of food, fuel and medicine are widespread. But sturdier oil prices and the possibility of an extension of an existing Opec and non-Opec agreement to restrain production could buy further time and resources for Caracas. Opec and participating non-Opec countries meet in Vienna on 30 November.
Still, PdV's declining crude production and deteriorated oil installations, together with expanding oil-backed debt commitments to China and Russia, mean that even a sustained rise in the oil price will have little impact on the economy.