New default worries over $3.2bn Venezuela oil group bond payments
Supreme court asked to decide if US dollars must be used to repay debt, says report
Venezuela’s supreme court has been asked to rule on whether bond payments due in the next two weeks adding up to more than $3.2bn can be made in local currency rather than the US dollars promised to bondholders, a local news outlet reported on Thursday.
Were that to happen, PDVSA, the national oil company that issued the bonds, would be in default, analysts said, tipping the company and its controller, the Venezuelan government, into one of the worst debt crises of recent decades.
However, it was not clear whether the possibility of such payment was genuine, or even if the request for information had come from the Venezuelan government or PDVSA.
According to the report by news outlet El Estímulo, which includes a facsimile of the request for a ruling, the court has been asked to decide whether a clause in a law governing the central bank, determining that payments due in foreign currencies may also be settled in local currency, applies to bonds issued by PDVSA coming due in 2016 and 2017.
PDVSA faces a payment of more than $1bn on October 28 and another of $2.2bn on November 2. It has asked bondholders to take part in a swap that would make it easier for it to make those payments.
PDVSA has threatened to default on its bonds if bondholders do not take part in the swap by a deadline of 5pm EST on Friday, October 21.
“This could be a scare tactic, or it could be a real strategy to try to save face and cover up their own incompetence [if they default],” said Russ Dallen of Caracas Capital.
“I don’t think this is a real possibility but it bothers me,” said Siobhan Morden of Nomura. “The more they talk about other options, the less conviction you have about their willingness to pay.”
Despite such fears, prices of the bonds at risk moved only slightly on Thursday.
On Wednesday, Rafael Rodriguez, a senior PDVSA official, told a conference call the company was “evaluating all alternative options”.
But on Thursday, Eulogio del Pino, PDVSA’s president and Venezuela’s oil minister, tweeted that the report in El Estímulo was “sabotage” by the government’s political opposition.
Lucas Aristizabal, PDVSA analyst at Fitch Ratings, said that if payment were to be made in local currency it would be considered a distressed debt exchange and would amount to default.
This would trigger accelerated payments on PDVSA’s debt and threaten its oil exports — the government’s only significant source of revenue — with chaotic disruption. PDVSA’s fleet of ships would be subject to seizure by creditors, analysts said, and payments for its oil exports would be interrupted as creditors attempted to seize them too.
The government in Caracas has so far paid all its bond obligations in full and on time as it seeks to avoid such a catastrophic outcome, even as its people riot for lack of imported foods and suffer hardship for lack of imported medicines, among other essential goods.
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