Venezuela Looks to Renegotiate Debt Amidst US Sanctions

Caracas’ previous debt restructuring attempts were unsuccessful.

By Manuela Solé and Ricardo Vaz
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The Venezuelan government made a "conditional offer" to bondholders. (AVN)
The Venezuelan government made a "conditional offer" to bondholders. (AVN)

Mérida, September 16, 2020 (venezuelanalysis.com) – Venezuelan Executive Vice President and recently appointed Finance Minister Delcy Rodriguez announced a debt renegotiation initiative on Tuesday.

"We ratify before the people and the international community our willingness to honor the commitments with bondholders concerning debt issued by the Republic, [state oil company] PDVSA and the Caracas Electricity Company," Rodriguez declared in a televised address.

PDVSA President Asdrubal Chavez and Solicitor General Reinaldo Munoz accompanied the Vice President in the press conference.

The government’s “conditional offer” entails suspending the current prescription periods on 29 bonds. In exchange, bondholders must suspend all existing claims in international courts. The deal only stands if bondholders owning more than 75% of the existing debt accept the offer until October 13.

“This is another display of our good will and cooperation spirit with the intention of safeguarding the rights of creditors without affecting Venezuela's economic recovery and growth,” the finance minister stated.

Since 2017 Venezuela has repeatedly, and unsuccessfully, attempted to restructure its debt amidst harsh US financial sanctions. Analysts also see the current efforts as doomed to fail, with economist Francisco Rodriguez stating that the document issued by the government has no “legal validity.”

Sanctions effectively prevent US persons and companies from discussing financial deals with targeted officials, including President Maduro and Vice President Rodriguez amongst others. The US Treasury Department’s unilateral measures have likewise shut the Venezuelan government and state companies off from financial markets, forbidding the renegotiation or issuance of new debt instruments.

The PDVSA 2020 bond, which was contemplated in the government offer, was mired in controversy last year when the opposition-controlled National Assembly fulfilled a US $71 million interest payment in May despite protests from hardliners. Months later, the Juan Guaido-led opposition declared the bond “void” right before a $913 million payment was due.

The 2020 bond is of special importance because PDVSA’s US subsidiary CITGO was pledged as collateral, with bondholders entitled to seize shares after payment was defaulted. CITGO was the subject of a legal battle throughout 2019 before US courts awarded control of the company to Guaido.

The oil subsidiary also risks being seized by Canadian mining giant Crystallex and US oil multinational ConocoPhillips to collect on $1.4 billion and $2 billion payments, respectively, awarded by international arbitration tribunals as compensation for assets nationalized by former President Hugo Chavez. However, the US Treasury Department issued a decree in November 2019 so that claimants require a special permission before seizing Venezuelan assets. The measure, which applies to PDVSA 2020 creditors as well, was recently extended until October.