Venezuela Will Seek to Restructure Its Debt
President Nicolas Maduro said Venezuela will seek to restructure its global debt after the state-owned oil company makes one last payment, blaming U.S. financial sanctions for making it impossible to find new financing.
The government will transfer funds for a $1.1 billion principal payment on Petroleos de Venezuela bonds that came due Thursday, Maduro said from Caracas. From there on out, the nation will renegotiate its debt with banks and investors, he said in a national address.
Venezuelan bonds trade at an average price of 36 cents on the dollar, reflecting widespread investor concern that the nation was headed for default.
Stopping payments is a step that Maduro and his late predecessor, Hugo Chavez, rejected for two decades — defying Wall Street analysts in recent years as cash drained from the government’s coffers, and making the nation’s debt one of the more profitable trades in emerging markets. By seeking a restructuring, Maduro is acknowledging that the heavy debt load has become unsustainable amid dwindling reserves and the financial sanctions.
“I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”
The oil producer known as PDVSA made an $842 million principal payment Oct. 27 despite doubts about its ability to pay, and the nation is already behind on about $800 million of interest payments. All told, Venezuela has $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital.
Sanctions imposed in August by the U.S. have made it increasingly difficult to raise money from many international investors. Those sanctions, which prohibit U.S.-regulated institutions form purchasing new bonds, will also limit the current regime from sitting down with U.S. investors to restructure its debt. It’s an unprecedented situation for bondholders, who have limited recourse to negotiate for payment as long as sanctions are in effect.
Vice President Tareck El Aissami, one of the individuals targeted in the sanctions, was named head of bond restructuring efforts. He will convene bondholders of all international debts owed by the sovereign and Petroleos de Venezuela, Maduro said. Earlier this year the Treasury Department alleged that El Aissami — who was elevated to his post in January — protected drug lords and oversaw a network exporting thousands of kilograms of cocaine.
Maduro made the announcement in a televised address in which he emphasized that Venezuela has always honored its obligations, and had the money to continue doing so, but was being hampered in its efforts by the financial penalties the U.S. imposed this year for what it said were anti-democratic moves by his administration.
There are plenty of Venezuela watchers — including economists such as Ricardo Hausmann — who have been urging the government to stop payments on its bonds. They say the debt load is unsustainable, and sending dollars to foreign investors while cutting back on imports of food, medicine and basic goods for the Venezuelan people is immoral.
Venezuela’s benchmark bonds due in 2027 have plunged from about 50 cents on the dollar a year ago to 38.7 on Thursday. International reserves have sunk to a 15-year low near $10 billion.