PDVSA bond investors press Venezuela with default request
Marc Carnegie and Davide Scigliuzzo
Petroleumworld 11 10 2017
Investors tightened the screws on embattled Venezuela on Wednesday, requesting a ruling on whether Caracas has formally defaulted on its debt.
The move raised the stakes for autocratic President Nicolas Maduro, who has consolidated power while seeing his oil-rich nation descend into political and economic chaos.
Market participants asked industry body ISDA to decide if state-owned oil company PDVSA has defaulted - a so-called “credit event” that would trigger payments on derivatives contracts that investors take out to insure against losses.
A “yes” decision by the International Swaps and Derivatives Association would intensify the confusion surrounding Venezuela, which sits on the world's largest proven reserves of oil.
Wednesday's request was prompted by an overdue US$1.1bn bond payment on a 2017 bond of state-owned oil company PDVSA that was supposed to have been delivered by November 2.
There have been contradictory accounts of whether the payment had been made in full by the expiration of the three-day grace period, after which the credit default swaps could be triggered.
Maduro's dollar-starved administration has had to divert cash that otherwise would have gone to buy food and medicines to keep its debt payments current and stave off a formal default.
At the same time, he has also said that Venezuela will restructure all its international debt and invited creditors for a meeting in Caracas on November 13.
But his decision to name Vice President Tareck El Aissami as chief negotiator in the process has added yet another wrinkle to an already complicated story.
The US Treasury, which has designated Aissami as a drug kingpin, said Wednesday that dealing with him would be “problematic” and could lead to penalties under US sanctions.
There is also skepticism among investors that Maduro's administration would be willing to accept meaningful economic reforms in exchange for a restructuring of its debt.
“If the government truly wants a negotiated restructuring, some political reforms will be a prerequisite for creditors to engage,” said Mike Conelius, who manages the emerging markets bond fund at T. Rowe Price.
“But it's very likely the regime and the economy will under more severe pressure after a default,” he said last week.
Siobhan Morden, head of Latin America fixed-income strategy at Nomura, said the invitation for the Caracas talks on short notice was “an aggressive and unrealistic proposal”.
In a note to clients earlier this week, she said: “The discussion is not about a potential restructuring but rather the timing and context of default.”
Sovereign defaults typically leave countries locked out of the international capital markets for years - something that could be disastrous for nation already short on cash.
Still, a country estimated to have some 40 million barrels of underground oil more than Saudi Arabia has managed to keep investors sanguine about their prospects of being paid.
Even word that just some of the overdue November 2 payment was en route was enough to give Venezuelan bonds a bounce in secondary trading on Wednesday.
Reporting by Marc Carnegie and Davide Scigliuzzo ; Reporting by Davide Scigliuzzo and Paul Kilby; Writing by Marc Carnegie; Editing by Paul Kilby from Reuters.
reuters.com 11 09 2017
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