Crisis in Venezuela: Maduro seeks to restructure debt with an offer to bondholders

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He proposed that the bondholders “interrupt” the payment of interest and principal.

Burdened by an unprecedented crisis, Venezuela proposed to the bondholders of the republic and the state-owned Petróleos de Venezuela (PDVSA) “interrupt” the payment of interest and capital, an action that, in practice, implies a debt restructuring.

Here are five keys to this proposal:

The interest payments that Venezuela proposed to interrupt were issued by the Ministry of Finance, PDVSA and the Electricidad de Caracas. The last two are state-run companies.

The Venezuelan government has said that the United States sanctions against its officials, public companies and its financial system have prevented it from complying with its obligations and that the proposed interruption of interest payments “protects” investors.

But the Venezuelan economist Jesús Casique told the EFE agency that the South American country has not canceled its commitments, not because of the sanctions, although they affect to some extent, but “because of (decrease in) cash flow, affected by the drop in (oil) production “.

“We are producing barely 367,000 barrels per day (of oil), that is, this dizzying fall, this slide effect, has affected the ‘cash flow’ of the country’s public finances” and affected interest payments, he added.

According to the information released by the government of Nicolás Maduro, the bondholders they will have until next October 13 to accept the proposal, which must be accepted through an official communication addressed to the Venezuelan authorities, if they accept it.

The proposal will only be effective if 75% of the holders of the series of bonds of each of the three issuers. That is, they avoid making legal claims for breach of obligations.

In this regard, Casique pointed out that other conditions are implicit in a debt renegotiation, such as “decrease the amount” of capital and handling long deadlines, two circumstances that Caracas did not refer to when announcing the interruption proposal.

The bonds, Casique noted, “are governed by New York law”, where the US financial system operates.

“Any debt restructuring or financing agreement of the Government is invalid before international courts” if it does not reconcile with New York laws and the conditions of the United States Office of Foreign Assets Control (OFAC, for its acronym in English ).

In other words, the Venezuelan proposal it is not final and the conditions could vary, since it is not the country that must establish them, but international entities on which the process depends.

According to Casique, in practice, Venezuela is in suspension of payments since 2017, when it last met its bond obligations (for more than 1,121 million dollars), hoping to access new financing and restructure the payments of obligations that mature in 2020.

“Venezuela’s ‘default’ is in the order of $ 22-23 billion“, explained the expert, before pointing out that the country’s” consolidated debt “amounts to $ 175 billion, an amount that is equivalent to 178% of the Venezuelan GDP, if the figure reported by the IMF for this indicator in the South American country is taken into account: 62,921 million dollars.

Casique also estimated that a debt with the characteristics of the Venezuelan “is not justified”, since the country enjoyed income in the order of 630,000 million dollars thanks to the oil booms between 2004-2008 and 2011-2014.

Officially, Venezuela has not declared bankruptcy, despite the fact that for the reason given, he stopped honoring his obligations.


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