Bondholder meeting in Caracas a bust
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.