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Venezuela to Make $1.1 Billion Payment for PdVSA Bond Friday -- 2nd Update

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11/03/2017 | 02:09am CET
By Julie Wernau and Anatoly Kurmanaev 

Venezuela's president on Thursday said the cash-strapped South American country will seek to restructure its debt, raising the prospect of a showdown with bondholders that could be complicated by U.S. sanctions on key members of the Venezuelan administration.

In a televised address late Thursday, President Nicolás Maduro announced plans to make a $1.1 billion principal payment Friday for a bond issued by state-owned oil company Petróleos de Venezuela, S.A. that was due Nov. 2.

"We will continue to meet our obligations," Mr. Maduro said.

He added that following Friday's payment, he would seek a voluntary restructuring of the country's remaining debt. Estimates of Venezuela's total outstanding debt vary, with some analyses putting the figure between $100 billion and $150 billion.

The development follows years of increasingly restricted financing options for Venezuela. In August, President Donald Trump issued an executive order prohibiting U.S. institutions from trading new bonds that would serve to help finance Mr. Maduro's government, a move aimed at punishing the regime for what the Trump administration called human-rights abuses and state-led corruption.

The sanctions also could make a debt restructuring difficult or even impossible, according to some sovereign debt restructuring attorneys, because they restrict bondholders' dealings with Venezuelan officials. Venezuela has many and varied creditors who are likely to scramble for limited assets in complicated legal battles in the event of a restructuring or default, some of the attorneys said.

Mr. Maduro said Thursday that Vice President Tareck El Aissami would be in charge of negotiating the restructuring. The U.S. government put Mr. El Aissami on a sanctions list in February for allegedly aiding drug traffickers. In the past, Mr. El Aissami and other Venezuelan officials have dismissed U.S. sanctions and accusations as attempts to destabilize the country's leftist government.

Venezuela's information ministry, a spokesman for Mr. El Aissami and a spokesman for PdVSA didn't immediately respond to requests for comment.

"Given U.S. sanctions and the policies of the current government, it's not clear whether there is a clear path forward other than for the government to seek to keep PdVSA's and the republic's assets beyond the reach of its creditors," said Richard Cooper, a senior partner in the restructuring group at law firm Cleary Gottlieb Steen & Hamilton.

Investors have been bracing for a default, and the Venezuela portion of a benchmark emerging-market bond index, the J.P. Morgan EMBI Global Diversified, is down nearly 5% this year through Wednesday. But over the past few years, bondholders have been rewarded with some of the best returns in emerging markets as Venezuela has continued to pay its debts.

Venezuelan bonds rallied after PdVSA said Oct. 27 that it would pay the $842 million in principal due that day. Bondholders and analysts say the country and PdVSA have fallen behind on several interest payments in recent weeks, which have a 30-day grace period. But there is no grace period for the principal payment in Venezuelan bonds, according to bond documents, meaning a delay could lead to a default.

If PdVSA misses Thursday's interest payment for its maturing bond, that adds up to $826 million in missed interest payments, according to an estimate from Nomura Securities International.

Write to Julie Wernau at [email protected] and Anatoly Kurmanaev at [email protected]

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