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Furious Venezuela bondholders hound Guaido's money man as defaults pile up

Victor J. Blue / Bloomberg

Jose Ignacio Hernandez

- Hernandez, a Caracas native, bears the brunt of angry calls
- Creditors are desperate for a plan that will pay them back

By Ben Bartenstein / Bloomberg

Petroleumworld 07 08 2019

Venezuela's political opposition is experiencing all the drudgery of governing without much of the actual power.

Perhaps no man knows that better than Jose Ignacio Hernandez. In February, the Caracas-born constitutional lawyer was named attorney general for the government being assembled by Juan Guaido. But while Guaido, the National Assembly President, has been recognized by the U.S. and more than 50 other governments as the country's rightful leader, he and allies like Hernandez have limited actual power.

No matter to the nation's creditors. After months of defaults and billions of dollars of unpaid bills, they're desperate for someone -- anyone -- tied to Venezuela to acknowledge the arrears and come up with a plan to pay them back. Since the U.S. says Guaido is president, creditors now see his staff as responsible for figuring out how to make things right.

Hernandez said he's getting dozens of calls a week from across the world. Everyone wants to know when they'll get their money. He tells them the hard truth: We can't pay you now and we don't know when we will.

“When you have a test in university, you need breathing space, so you go to the library and there's a big sign: Silence,” Hernandez, 44, said in an interview in New York. “I need silence. I need to think carefully. And I can't think carefully when I have my phone ringing with claimants, door knocking with claimants and lawyers saying we have a due date. Nobody can work like that.”

While the Guaido government has gradually taken over an undisclosed amount of Venezuelan assets from Nicolas Maduro's regime, sanctions mean they're effectively in a locked box that can't be touched without approval from the Treasury Department and Venezuela's National Assembly.

In fact, the financial situation is so delicate that Hernandez said neither he nor his colleagues in Washington are getting paid. The plan is to pass a special budget law that would establish a payroll for Guaido officials and free up funds to address the humanitarian crisis, he said. A comptroller would be appointed to supervise.

The opposition's efforts to take over Miraflores Palace have stalled in recent weeks after a botched uprising on April 30. Since then, the Maduro regime has cracked down on those responsible, forcing some lawmakers to hole up in safe houses. Tensions boiled over further last weekend after the death of a navy captain involved in the revolt.

Amid the stalemate and U.S. sanctions, trading in Venezuelan debt had all but dried up until recently. The country's benchmark bonds have fallen 6 cents since the middle of last week to about 20 cents on the dollar as JPMorgan Chase & Co. prepares to drop the nation's weight to zero in its bond indexes.

Settling with creditors figures to be a priority for the new government, which will need to create a plan for bondholders, oil service providers and loans from Russia and China. Venezuela's total liabilities are about $114 billion, according to Barclays Plc, or $157 billion, if you listen to Torino Capital, the New York-based boutique investment bank. Hernandez himself said the total may exceed $200 billion, although it's tough to be sure given the unknown number of claims on promissory notes, expropriations and other liabilities.

Cooped up in an abandoned diplomatic facility in Washington run by Venezuela's military attache, who defected from Maduro to join Guaido's camp, Hernandez's four-person team fields calls from a long list of lawyers seeking their place at the table. Meantime, he's often on the road, juggling his responsibilities as a fellow at Harvard University as well as meetings on Wall Street and beyond.

One of Hernandez's big projects is what he calls the kleptocracy asset recovery plan. He's assembling a global team of lawyers, investigators and government officials to identify the billions of dollars he believes was looted from the Venezuelan public under Maduro and his predecessor Hugo Chavez.

While it's impossible to predict how much they could obtain, Hernandez said it's possibly up to $300 billion, which could be a very optimistic estimate. He offered scant details on where such money is sitting: “If I say I'm looking for stolen money in Paris, then people will move all their money from Paris.”

Another thorny issue is what to do with notes from the state oil company due in 2020 that are backed by a stake in its Houston-based refining unit, Citgo. It's the one bond that Venezuela has continued to pay for fear of losing the collateral.

“All options are on the table” for October, when nearly $1 billion is due on the debt, although Hernandez said he's confident that the Trump administration will issue an asset protection order. The U.S. has thus far resisted requests by Guaido's representatives to do so.

Failure -- be it losing Citgo or other assets -- is not an option, he said.

“We're on a Titanic that's sinking and I have the possibility to avoid that disaster, but at the same time, I have a lot of people saying, ‘Save me, save me, save me,'” Hernandez said. “So I say, ‘Please give me an hour and I will attend to your problem.' Otherwise, we're going to the bottom of the sea.”

— With assistance by Karina Montoya, Jose Enrique Arrioja, and Jenny Paris

Story by Ben Bartenstein from Bloomberg. 07 05 2019


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