ALL-ROUND BUST

Bond­holder meet­ing in Cara­cas a bust

Bangkok Post - - BUSINESS - BLOOMBERG

Venezuela’s grand gath­er­ing with cred­i­tors lasts all of 30 min­utes, and S&P de­clares the coun­try in de­fault.

LIMA/NEW YORK: Venezuela’s grand gath­er­ing with cred­i­tors on Mon­day lasted all of 30 min­utes and didn’t pro­duce any­thing of sub­stance. To make mat­ters worse, S&P Global Rat­ings de­clared the coun­try in de­fault while Fitch Rat­ings cited missed pay­ments by the state oil com­pany.

The ac­tions from the rat­ings com­pa­nies came af­ter an odd spec­ta­cle in Cara­cas, where bond in­vestors who made the trek to hear the coun­try’s re­struc­tur­ing pro­posal found a red-car­pet wel­come, an hon­our guard salute and gift bags stuffed with state-pro­duced choco­late and cof­fee.

Fewer than 100 cred­i­tors showed up at the down­town Cara­cas of­fice build­ing, and at least one high­tailed it out af­ter re­al­is­ing that two govern­ment of­fi­cials sanc­tioned by the United States were in at­ten­dance, fear­ful of vi­o­lat­ing rules gov­ern­ing in­ter­ac­tions with them.

He didn’t miss much. Noth­ing of im­port was an­nounced and noth­ing of im­port was re­solved, ac­cord­ing to at­ten­dees who said they left just as con­fused about the govern­ment’s in­ten­tions as they were go­ing in.

Vice Pres­i­dent Tareck El Ais­sami was the only of­fi­cial to speak, and devoted most of his pre­pared re­marks to rail­ing against Don­ald Trump and global fi­nanciers who he said have con­spired to keep the coun­try from mak­ing debt pay­ments on time.

He pledged the na­tion would con­tinue to hon­our its obli­ga­tions and work with bond­hold­ers to find new ways to get them their money.

Pres­i­dent Ni­co­las Maduro had sum­moned hold­ers of some $60 bil­lion of bonds is­sued by the govern­ment and state oil com­pany Petroleos de Venezuela SA (PDVSA) to be­gin a rene­go­ti­a­tion as the na­tion’s cash crunch wors­ens, sanc­tions make it dif­fi­cult to trans­fer money and de­layed pay­ments pile up.

Over the week­end, the grace pe­riod on $280 mil­lion in bond pay­ments ex­pired, and late Mon­day Fitch Rat­ings de­clared PDVSA in de­fault and S&P did the same to the sov­er­eign af­ter each were late get­ting cash to bond­hold­ers.

“The debt re­struc­tur­ing process, which the com­pany in­tends to un­dergo, will likely be pro­longed due to the re­stric­tive sanc­tions im­posed by the US govern­ment,” Fitch said in a state­ment. “PDVSA’s liq­uid­ity po­si­tion is ex­pected to con­tinue to weaken as a re­sult of low oil prices and near-term debt ser­vice pay­ments.”

The na­tion, home to the world’s largest oil re­serves, owed in­vestors about $200 mil­lion and failed to make those pay­ments by the end of a 30-day grace pe­riod, S&P said in a state­ment in which it low­ered the coun­try’s rat­ing to SD.

Plagued with pay­ment de­lays and run­ning low on cash — and with most of its debt trad­ing near 30 cents on the dol­lar — it’s the first time in re­cent years the govern­ment has ex­ceeded the buf­fer pe­riod on its bonds.

In­vestors in Venezuela’s $5 bil­lion of bonds ma­tur­ing in 2019 and 2024 can or­gan­ise to de­mand that the na­tion im­me­di­ately pay back all they’re owed, and down the line, hold­ers of the na­tion’s other debt, which have cross-de­fault pro­vi­sions, could choose to do the same.

It’s pos­si­ble in­vestors won’t take those ac­tions, and in­stead put their hopes on get­ting a de­layed pay­ment. Other­wise, they risk set­ting off what could be the start of one of the messi­est debt re­struc­tur­ings ever.

S&P said there was a 50% chance Venezuela will de­fault again within the next three months.

The In­ter­na­tional Swaps & De­riv­a­tives As­so­ci­a­tion was sched­uled to re­con­vene yes­ter­day to con­sider whether PDVSA’s de­layed debt pay­ments will trig­ger de­fault-in­sur­ance con­tracts.

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