Venezuela in ‘se­lec­tive de­fault’: S&P

Kuwait Times - - Business -

CARA­CAS: Venezuela faced the first of what could be a cas­cade of de­faults on its $150bil­lion for­eign debt yes­ter­day as Stan­dard and Poor’s de­clared the cri­sis-torn South Amer­i­can coun­try in “se­lec­tive de­fault”. S&P’s move came af­ter Vice Pres­i­dent Tareck El Ais­sami met with cred­i­tors in Cara­cas Mon­day, but of­fered no way out of the im­passe.

In the mean­time, China said its mas­sive fi­nanc­ing of Venezuela was “pro­ceed­ing nor­mally”, and Rus­sia was ex­pected to sign an agree­ment as early as to­day to re­struc­ture $3 bil­lion of Cara­cas’s debt, ac­cord­ing to sources in Moscow fa­mil­iar with the mat­ter. Beijing and Moscow have emerged as Venezuela’s most re­li­able sources of fund­ing, with China owed $28 bil­lion and Rus­sia $8 bil­lion.

S&P de­clared Venezuela in “se­lec­tive de­fault” af­ter it failed to make $200 mil­lion in pay­ments on two global bond is­sues by the end of a 30-day grace pe­riod 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, adding that $420 mil­lion in pay­ments on four other bonds were also over­due, but still within the grace pe­riod.

Venezuela’s debt crunch comes as no sur­prise, as the gov­ern­ment cuts back on im­ports to ser­vice its debt, leav­ing the pop­u­la­tion strug­gling with short­ages of food and medicine. Cara­cas has less than $10 bil­lion left in hard cur­rency re­serves, but must make $1.4 bil­lion in debt pay­ments be­fore yearend, and an­other $8 bil­lion next year.

Cred­i­tors meet

Pres­i­dent Ni­co­las Maduro has formed a com­mis­sion to re­struc­ture Venezuela’s sov­er­eign debt and that of state oil com­pany PDVSA. But par­tic­i­pants in a first meet­ing in Cara­cas on Mon­day said of­fi­cials had come up with no con­crete pro­pos­als for re­struc­tur­ing the debt.

“They didn’t give any con­crete de­tails on their plans, on what they hope to get,” Geron­imo Man­sutti, from the Ren­di­val­ores bro­ker­age, told AFP. 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,” it said.

Vice-pres­i­dent El Ais­sami blamed US sanc­tions for de­lays to Venezuela’s debt re­pay­ments.

Re­stric­tions in­clude a ban on US en­ti­ties buy­ing any new Venezuela debt is­sues-usu­ally a re­quired step in any re­struc­tur­ing. The US has des­ig­nated vice pres­i­dent El Ais­sami him­self a drug king­pin with whom US en­ti­ties are barred from deal­ing.

De­ci­sion post­poned in New York

A com­mit­tee of the In­ter­na­tional Swaps and De­riv­a­tives As­so­ci­a­tion (ISDA) is weigh­ing whether hold­ers of PDVSA debt with de­fault in­sur­ance-credit de­fault swaps-can col­lect payment.

The Maduro gov­ern­ment had said it would make a $1.2-bil­lion payment on a PDVSA bond on Novem­ber 2, but it was un­clear if the funds ever reached cred­i­tors. A com­mit­tee of 15 fi­nan­cial firms met in New York “to dis­cuss whether a Fail­ure to Pay Credit Event had oc­curred” with re­spect to PDVSA, but ended up post­pon­ing a de­ci­sion un­til Tues­day. Adding to the pres­sure on Maduro was the Euro­pean Union’s an­nounce­ment of sanc­tions.

Maduro de­fi­ant

But Maduro re­mains de­fi­ant, in­sist­ing on Sun­day that his coun­try would “never” de­fault and point­ing to on­go­ing ne­go­ti­a­tions with China and Rus­sia. Nev­er­the­less, his op­tions are very lim­ited. A de­fault can be de­clared ei­ther by the ma­jor rat­ings agen­cies, big debt-hold­ers or by the gov­ern­ment it­self. — AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.