[Marxism] NYT As a Debt Deadline Looms for Venezuela, Maduro Is Defiant

Anthony Boynton anthony.boynton at gmail.com
Fri Nov 3 08:53:56 MDT 2017


As a Debt Deadline Looms for Venezuela, Maduro Is Defiant

By KIRK SEMPLE <https://www.nytimes.com/by/kirk-semple> and CLIFFORD KRAUSS
<https://www.nytimes.com/by/clifford-krauss>NOV. 2, 2017
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Photo
President Nicolás Maduro said his vice president, Tareck El Aissami, left,
will lead the restructuring effort.CreditMiraflores Palace, via Reuters

CARACAS, Venezuela — With the threat of default looming over Venezuela
<https://www.nytimes.com/topic/destination/venezuela?8qa>, President
Nicolás Maduro said late Thursday that his government would initiate a
restructuring and refinancing of the country’s foreign debt.

The announcement came at the deadline for a $1.2 billion payment by the
state oil company on a maturing bond, which Mr. Maduro said his government
would instead deliver on Friday.

Speaking on national television, Mr. Maduro said that his government was
fighting “a battle for the financial stability and tranquillity of
Venezuela.”

“We’re going to win this battle,” he vowed.

The move is an acknowledgment of how serious the government’s financial
problems have become, and throws further into doubt the future of the
country, which has been grappling with an economic crisis that has caused dire
shortages of food and medicine
<https://www.nytimes.com/2016/12/25/world/americas/venezuela-hunger.html>.

Mr. Maduro has blamed the crisis in part on the Trump administration, which
he has accused of leading an “economic war” against his country through
economic sanctions intended to prevent Venezuela’s government from
contracting new debt.
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   <https://www.nytimes.com/2017/10/29/business/energy-environment/russia-venezula-oil-rosneft.html>

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<https://www.nytimes.com/2017/11/02/world/americas/venezuela-debt.html?rref=collection%2Fsectioncollection%2Fworld&action=click&contentCollection=world&region=rank&module=package&version=highlights&contentPlacement=1&pgtype=sectionfront#story-continues-3>

Given the sanctions, however, it remained unclear how Mr. Maduro intended
to restructure the government’s debt.

“There’s no way to restructure under existing U.S. sanctions, but the
government may be hoping that bond holders now pressure the Trump
administration to create an exemption to the sanctions,” said Risa
Grais-Targow, director for Latin America at Eurasia Group, a political risk
analysis firm.

In a challenge to the Trump administration, Mr. Maduro also named Vice
President Tareck El Aisammí
<https://www.nytimes.com/2017/02/16/world/americas/venezuela-tareck-el-aissami-drugs-sanctions-maduro.html>
to
lead the efforts. Mr. El Aisammí has been sanctioned by the United States
over allegations that he is a narcotics trafficker, which blocks Americans
from doing business with him.

There was no grace period for the loan payment due on Thursday, and it
remained unclear how investors would react to the failure of the state oil
company, Petróleos de Venezuela, or Pdvsa, to make the payment on time.

But Diego Ferro, co-chief investment officer at Greylock Capital
Management, a New York hedge fund that invests in distressed high-yield
bonds, said the restructuring announcement could buy Mr. Maduro some time
with bondholders and the Venezuelan people.

“People were expecting the payment late anyway,” he said. “As of now they
have at least a few months to come up with an offer to put off litigation
in the United States. It will depend on what they offer” in terms of
payments of principal and interest.
Photo
Venezuela’s state oil company, Petróleos de Venezuela, or Pdvsa, has
offered leasing deals to Russian and Chinese companies. CreditRicardo
Moraes/Reuters

Mr. Maduro has sought to avoid a default, which could trigger years of
international legal battles among creditors for control of Pdvsa assets
outside Venezuela, including its American refinery subsidiary Citgo and
tankers that deliver oil around the world.

“Venezuela will not default strategically,” said Miguel Angel Santos, a
senior research fellow at the Center for International Development at
Harvard. “If it defaults, it’s because they have really run out of dimes
and nickels.”

In a default, Venezuelan petroleum exports would be interrupted, forcing
the government to cultivate new ways of getting the nation’s oil into the
international marketplace, perhaps including an increasing dependence on
the Russian oil company
<https://www.nytimes.com/2017/10/29/business/energy-environment/russia-venezula-oil-rosneft.html>
Rosneft
<https://www.nytimes.com/2017/10/29/business/energy-environment/russia-venezula-oil-rosneft.html>,
according to analysts.
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During a similar debt crunch in April, Rosneft provided a $1 billion
advance payment for oil, which was crucial for Pdvsa to make nearly $3
billion in bond payments. Last week, senior Russian officials said they
were ready to restructure some debts to suspend hundreds of millions in
payments until 2020 or later.

Rosneft has a 49.9 percent stake in Citgo, Pdvsa’s refining and gasoline
station subsidiary in the United States, as collateral for a $1.5 billion
loan to the Venezuelan oil company. Rosneft and Pdvsa are in negotiations
to swap Rosneft’s Citgo holdings for oil fields in Venezuela out of concern
that the United States government could eventually place sanctions on Citgo.

International bond experts and the markets had been optimistic that the
Venezuelan state oil company would make the $1.2 billion payment on time on
Thursday.

But in recent years, Pdvsa has increasingly left investors and the market
guessing up to the last minute on whether it would make its debt payments.

With the company facing a deadline last week on a separate bond payment,
the markets were particularly jittery amid conflicting signals from the
government about its preparedness to pay. On Friday, the company announced
it had started to make the payment before the deadline, though bondholders
did not start seeing the payments until a few days later.

The Venezuelan government and Pdvsa have been skipping interest payments
over the last four weeks, taking advantage of grace periods to delay more
than $700 million in payouts.

“They’re living day by day essentially,” said Daniel Lansberg-Rodriguez, an
adjunct lecturer of finance at the Kellogg School of Management. “There’s a
sense that at the liquidity level, there’s a scramble, there’s always a
scramble.”

Venezuela has a $140 billion external debt, most of which was borrowed in
recent years when oil prices were more than $100 a barrel. The collapse of
oil prices
<https://www.nytimes.com/interactive/2016/business/energy-environment/oil-price-supply-demand-imblance.html>
three
years ago forced Venezuela into a crisis, and experts have been predicting
that a default is nearly certain unless oil prices recover quickly to over
$75 a barrel — well above current levels.

With more debt payments due in the coming months, the government and Pdvsa
are offering leasing deals to Russian and Chinese companies to transfer
operational control of one or two major refineries, according to Argus, an
energy and commodity news service.

But energy experts say that Venezuela’s refineries would be risky
investments for any foreign oil company given that they are in poor working
condition and that the domestic gasoline and diesel market is highly
subsidized so returns are low.



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