Venezuela to Restructure Debt

The major financial decision will be overseen by a presidential commission and will include a restructuring of debt at state oil firm PDVSA.

By Ryan Mallett-Outtrim
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Puebla, Mexico, November 3, 2017 (venezuelanalysis.com) – Venezuelan President Nicolas Maduro announced Thursday plans to restructure his country’s foreign debt.

“We’re going to begin a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country,” Maduro said.

The major financial decision will be overseen by a presidential commission and will include a restructuring of debt at state oil firm PDVSA.

“I am naming a special presidential commission led by Vice President Tareck El Aissami to begin refinancing and restructuring all of Venezuela’s external debt and the fight against the financial persecution of our country,” Maduro said.

Maduro said Aissami will soon carry out talks with banking representatives and bondholders.

The announcement came as Maduro confirmed PDVSA was set to make US$1.1 billion on bond payments, ending weeks of speculation the government would fall short.

"We have the money for this payment, and we also have the money for raw materials, medicines and food," Maduro said.

While the payment was set to ease tensions among bondholders, Maduro’s planned debt restructuring was met with mixed responses.

“[It’s] going to be ugly for holders,” Ray Zucaro from RVX Asset Management told Bloomberg.

“There’s no real way to sugar coat,” he said, warning the announcement could spark confusion and unease among bondholders.

Torino Capital was more optimistic, arguing the latest PDVSA payments show “that authorities are willing to continue honoring the debt during the renegotiation process”.

“We therefore interpret Maduro’s statement as indicative of the government’s intent to refinance its external obligations rather than a decision to make a take-it-or-leave-it offer to bondholders,” Torino Capital said in a statement to investors.

However, they noted current US sanctions make it “nearly impossible for Venezuela to carry out a voluntary restructuring of its external debt”.

“Therefore, it is unclear that the Venezuelan government will be able to carry out a successful restructuring of its bonds,” they concluded.

Speaking to Reuters, Asdrubal Oliveros of the Caracas-based Ecoanalitica said, “I see a restructuring impossible.”

“However, if the government decrees a unilateral restructuring – they say ‘take it or leave it’ – that is an event of default,” he said.

In recent years the Maduro administration has staunchly dismissed rumors of default, with Maduro vowing to honor his government’s debts.

Venezuela’s government and state enterprises like PDVSA collectively owe around US$143 billion in foreign debt, according to Torino. PDVSA alone has around US1.6 billion in debt payments due by the end of the year, and another US$9 billion on bond servicing set to fall in 2018.