Caracas calls creditors for talks on debt restructuring

PresidentNicolas Maduro’s cash-strapped socialist government invited Venezuelanbondholders to a November 13 meeting in Caracas as a shock decision torestructure the Opec nation’s foreign debt sent prices plungingyesterday.Vice President Tareck El Aissami, who is on a US blacklistfor alleged drug trafficking, said the country remained committed topaying all its debt, but wanted to reformulate terms with creditors.“Asovereign process of debt renegotiation is beginning,” said El Aissami,who is heading Venezuela’s debt committee despite having no known priorexperience on the matter.El Aissami gave an e-mail address forbondholders to write to and added that Economy Minister Simon Zerpa —also under US sanctions on graft charges — would be on his committeetoo.Venezuelan bond prices took a beating in trading yesterday after Maduro’s surprise announcements on Thursday evening.The$753mn 2018 bond plunged 31 points, while the $3bn 2026 bond and $4.2bn2031 papers both slumped about 10 points, with yields surging to recordlevels.State oil company PDVSA’s 2021 bond was down 20 points while the 2022 paper dropped nearly 18 points, Reuters data showed.Maduro,the 54-year-old successor to Hugo Chavez, said late on Thursday thatPDVSA would make this week’s $1.1bn payment on a maturing bond which hadbeen the immediate point of anxiety for investors.But he thenannounced a new commission to study the refinancing and restructuring ofall future payments on foreign debt, which include about $50bn inbonds.Refinancing usually involves a voluntary operation in whichinvestors agree to exchange one set of securities for another, whereas arestructuring implies a forced negotiation.Venezuela has fewavenues to take either because of President Donald Trump’s sanctions andscepticism that Maduro is serious about overhauling a moribund economy.Aimedat squeezing the ruling Socialist Party whom Washington accuses ofinstalling a dictatorship, Trump’s measures bar US banks fromparticipating in or even negotiating new debt deals.Venezuela’s movecould create a sovereign debt crisis of a scale not seen in LatinAmerica since the massive 2001 default in Argentina that shut it out ofmarkets for years.Maduro said a US-led global “persecution” of his government was to blame for Venezuela’s debt predicament.Butopposition leaders, who have long blamed Maduro and his predecessorChavez for destroying the economy, was scathing about his plans, sayingthe government had no credibility.“Maduro won’t be able torestructure the debt because nobody in the world trusts his government,”said Julio Borges, head of the opposition-led congress, who has beencampaigning hard to increase global pressure on Maduro.The president said Borges should be tried for treason.Thegovernment and PDVSA owe some $1.6bn in debt service and delayedinterest payments by the end of the year, plus another $9bn in bondservicing throughout 2018.The next hard payment deadline for PDVSAis an $81mn bond payment that was due on October 12 but on which thecompany delayed payment under a 30-day grace period.Failing to pay that on time would trigger a default, investors say.That would expose Venezuela and PDVSA to lawsuits by creditors seeking to seize assets such as refineries in the US.Defaultwould also likely make companies less willing to do business withVenezuela, potentially aggravating shortages of food and medicine andcreating further problems for its vital oil industry already hobbled byunder-investment.There was no immediate impact, however, on oil exports and production from Maduro’s announcement.Thepresident surprised many by maintaining debt service after the 2014crash in oil prices, diverting hard currency away from imports of foodand medicine toward Wall Street investors.That has added to acrushing four-year recession, with millions skipping meals, and basicsfrom milk to car parts scarce or impossible to buy due to soaringprices.Traders were left scratching their heads over Maduro’sstatements, which neither clearly declared default nor laid out a pathto easing payment burden.