Venezuela in ‘se­lec­tive de­fault’

The Phnom Penh Post - - MARKBEUTSSINESS - Maria Is­abel Sanchez

VENEZUELA faced the first of what could be a cas­cade of de­faults on its $150 bil­lion for­eign debt yes­ter­day as Stan­dard and Poor’s be­came the first credit agency to de­clare the cri­sis-torn South Amer­i­can coun­try in “se­lec­tive de­fault”.

The US agency’s ac­tion came af­ter Vice Pres­i­dent Tareck El Ais­sami met with cred­i­tors in Cara­cas on Mon­day but of­fered no way out of the im­passe.

S&P said it had de­clared Venezuela in “se­lec­tive de­fault” be­cause it failed to make $200 mil­lion in pay­ments on two global bond is­sues by the end of a 30-day grace pe­riod, which fell on Novem­ber 12.

“We have low­ered two is­sue rat­ings to ‘D’ [de­fault], and we low­ered the long-term for­eign cur­rency sov­er­eign credit rat­ing to ‘SD’ [se­lec­tive de­fault],” the agency said in a state­ment late Mon­day.

It said pay­ments on four other bonds also were over­due but still within the grace pe­riod. The over­due bond obli­ga­tions to­tal $420 mil­lion, it said.

The debt crunch comes as no sur­prise in a once pros­per­ous oil pro­duc­ing coun­try whose in­hab­i­tants are now strug­gling with dire short­ages of food and medicine, as the gov­ern­ment cuts back im­ports to ser­vice the stag­ger­ing for­eign debt.

It has less than $10 bil­lion left in hard cur­rency re­serves, and yet it must make $1.4 bil­lion in debt pay­ments be­fore the end of the year, and an­other $8 bil­lion next year.

Pres­i­dent Ni­co­las Maduro has formed a com­mis­sion to re­struc­ture Venezuela’s sov­er­eign debt and that of state oil com­pany PDVSA.

But at its first meet­ing with cred­i­tors on Mon­day in Cara­cas – a 25 minute, close door ses­sion – par­tic­i­pants said of­fi­cials pro­posed no plan for re­struc­tur­ing the debt.

“They said they are go­ing to form work­ing groups to eval­u­ate short- and mid-term debt rene­go­ti­a­tion pro­pos­als,” Geron­imo Man­sutti, from the Ren­di­val­ores bro­ker­age, said.

“But they didn’t give any con­crete de­tails on their plans, on what they hope to get.”

About 70 per­cent of Venezue­lan bond­hold­ers are North Amer­i­can, ac­cord­ing to gov­ern­ment fig­ures.

S&P said there was “a one-in-two chance that Venezuela could de­fault again within the next three months”.

“We would very likely con­sider any Venezue­lan re­struc­tur­ing to be a dis­tressed debt ex­change and equiv­a­lent to de­fault given the highly con­strained ex­ter­nal liq­uid­ity,” S&P said.

“In ad­di­tion, in our opin­ion, US sanc­tions on Venezuela and gov­ern­ment mem­bers will most likely re­sult in a long and dif­fi­cult ne­go­ti­a­tion with bond­hold­ers,” it said.

At the meet­ing with cred­i­tors, El Ais­sami read a state­ment blam­ing US sanc­tions for de­lays to Venezuela’s debt re­pay­ments.

Re­stric­tions in­clude a pro­hi­bi­tion on US en­ti­ties buy­ing any new Venezuela debt is­sues – usu­ally a re­quired step in any re­struc­tur­ing.

El Ais­sami’s pres­ence was prob­lem­atic for some, as the US has des­ig­nated him a drug king­pin with whom US en­ti­ties are barred from deal­ing.

Late on Sun­day, Maduro struck a de­fi­ant tone, in­sist­ing that his coun­try would “never” de­fault and point­ing to on­go­ing ne­go­ti­a­tions with China and Rus­sia.


Venezue­lan Vice Pres­i­dent Tareck El Ais­sami (cen­tre) speaks dur­ing a meet­ing with cred­i­tors and in­vestors in Cara­cas on Mon­day.

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