Venezuela likely to go bankrupt in a day?Venezuela is likely to be declared as bankrupt nation, which could start a global financial crisis, as the Latin American country has not made any debt payment to many entities including Indian oil and gas major ONGC.
Venezuela is likely to be declared as bankrupt nation, which could start a global financial crisis, as the Latin American country has not made any debt payment to many entities including Indian oil and gas major ONGC.
The financial crisis would be amounting to USD 60 billion as Venezuela's President Nicolas Maduro announced last week that the country was going to restructure bonds worth around USD 60 billion, Sunday Express reported. A large amount of these bonds are held by PDVSA.
The derivatives' participant body ISDA will meet on November 13 to determine whether the debt-laden country has reached a stage for defaulting.
Venezuela’s state-owned oil firm PDVSA has not made a payment to ONGC since April. Over and above that, PDVSA also owes USD 540 million as a backlog of dividends to ONGC for an investment the Indian company had made on an energy project in Venezuela.
ONGC Videsh, which is the foreign investment vertical of ONGC, told Reuters that PDVSA had fallen behind on the payments. However, it still seemed to be giving Maduro a benefit of doubt as it said: “They have assured that they are working on it (the due payments). In due course it will be settled and follow-on steps will be undertaken.”
Amid internal political catastrophe, Venezuela still has India lending it a hand; the ONGC underlined in its email to Reuters that it shared a “good relationship” with PDVSA.
PDVSA has not only delayed this, but other payments for oil services and supplies as well, says Reuters.
The country was formerly using a public sector bank in Russia and another Indian energy company as mediators for making debt payments.
However, bankruptcy is still on the cards as the OPEC member’s economy has collapsed since global oil prices plunged in 2014 and it has been suffering since. Venezuela’s economy dependent on oil and ropes in above 90 percent of export revenue from oil.
Venezuela has often used oil to repay debt; it owes billions of dollars to both Russia and China and is paying both with oil.
As per the Sunday Express, International banks have either stopped or severely cut credit available to PDVSA .
PDVSA also failed to make a USD 1.1 billion payment due last Friday.
Siobhan Morden, Head of Latin American bond strategy at Nomura, told the Express, "There has been no official communication on the payment delays. It is really odd that funds haven’t been received with sufficient time to process if the funds were sent last week as officials indicated."
As per Bloomberg, the International Swaps and Derivatives Association (ISDA) will review an appeal to determine if a default stage has emerged due to the lack of payments
The Express report says ISDA is meeting on November 13 for a bond restructuring meeting. But US investors are not at all confident about the outcome of the meeting.
Russia can still save Venezuela as the two nations are expected to sign a debt restructuring deal on November 15 with a term of around 10 years where payments will rising gradually, a source told the newspaper.
But Venezuela will have to pay Russia back with a large bulk of money before the end of 2017 for the agreement to come into effect, the source told the newspaper.
Locked in a deep economic crisis, Venezuela’s beleaguered government has summoned creditors for crisis talks on Monday as it lurches dangerously close to defaulting on its debt.
The country with the world’s largest known oil reserves is on the brink of bankruptcy, and its embattled President Nicolas Maduro is fast running out of options.
International credit ratings agency Standard & Poor's has declared Venezuela to be in "selective default".
The ratings agency said the South American nation had failed to make $200m (£153m) in repayments on its foreign debt.
Venezuela's state-run oil company PDVSA has also been declared in default by rating agencies Fitch and Moody's.
The news came just hours after the government met investors in Caracas to try to renegotiate its debt.
Standard & Poor's declares a "selective default" when a country has failed to pay one or more of its financial obligations when it came due.
In the case of Venezuela, the government of President Nicolás Maduro failed to make $200m in payments on two global bond issues by 12 November, when a 30-day grace period expired.
S&P says Venezuela is also overdue on four other bond payments worth a total of $420m but that the grace period has not yet expired on those payments.
Venezuela's total external debt, which also includes loans from countries like Russia and China, is thought to be as much as $140bn.
Hampered by sanctions
On Monday, government officials met with creditors in Caracas in an attempt to restructure its debt.
But creditors who attended the meeting told journalists that the 25-minute meeting ended without the government making any concrete proposals.
Instead, the head of the Venezuelan commission, Vice-President Tareck El Aissami, read a statement blaming sanctions imposed by the United States for Venezuela's difficulties in making the payments.
Mr Aissami, who has been accused of drug trafficking by the US, is himself on the list of Venezuelan individuals sanctioned by the US treasury department.
Participants in the creditors' meeting said at least one attendee left the room when it became clear Mr Aissami would be leading it.
Under the sanctions, no US citizen can do business with Venezuelan individuals on the list.
The sanctions also impose a ban on US entities buying any new Venezuelan debt issues, complicating the government's debt restructuring plan.
The Venezuelan government described the creditors' meeting as "a resounding success" and said that it would continue to service its debts.
It is easy to see why. The country has to reimburse close to $12 billion (€10 billion) per year between 2018 and 2020, but IMF figures suggest it has a mere $10 billion (€8.6 billion) in hard-currency reserves.
Making matters worse, PDVSA, the all-important state oil company, is also broke and already in arrearson its own debt payments. Should it default on its debt, creditors would soon turn on the Venezuelan state seeking redress.
In another sign of financial unravelling, the Caracas-based electricity company, Corpoelec, was unable to make a $28 million (€24 million) payment on a $650 million (€557 million) bond last week.
Add to that a new batch of economic sanctions and an arms embargo announced by the European Union on Monday, and Maduro’s prospects look increasingly bleak.
Blacklisted negotiator
But when it comes to the technical world of debt trading, things remain unclear. Monday may be a day of reckoning, or judgment may be pushed off again.
“Venezuela could announce it will follow Argentina’s example by ceasing all payments, or it could try to wrest concessions from its creditors,” said Paul Mallock, a Venezuela specialist at London Metropolitan University, in an interview with FRANCE 24.
FRANCE 24 TALKS TO DELCY RODRIGUEZ, HEAD OF VENEZUELA'S CONSTITUENT ASSEMBLY
The Caracas meeting of foreign bondholders could bring some clarity, though it is not clear who will even take part.
One key player, Venezuela’s vice-president Tareck El Aissami, who has been blacklisted by the US over allegations of drug trafficking, threatens to derail the talks altogether.
Maduro has asked El Aissami to lead negotiations with the country’s creditors, most of whom are based in North America. But no US national is allowed to engage in talks with him.
In a bid to assuage creditors’ concerns, Venezuelan officials have suggested El Aissami might not be physically present at the talks – meaning the issue of debt restructuring could be discussed without the man in charge of overseeing it.
Maduro is also being buffeted by international accusations that he is acting as an autocrat –stomping on democracy by marginalising the opposition, which controls the parliament, and stifling independent media.
Those accusations underpin successive rounds of US sanctions on Maduro’s government, including a new batch unveiled last week.
Not another Argentina
Lambasted by the West, Venezuela may yet earn a little respite from its remaining allies, including Russia and China.
Last week Moscow agreed to give Caracas more time to repay $3 billion (€2.5 billion) in debt. Beijing has also been generous in the past, though Mallock noted that “both countries are starting to drag their feet when it comes to lending more money”.
Other creditors may also be lenient, mindful of Venezuela’s exemplary record on debt repayments. For all its revolutionary banter, the Socialist regime set up by the late Hugo Chavez has always been at pains to meet its deadlines with lenders – even when it meant slashing public spending.
Opposition leaders and several economists are pressing the government to freeze debt payments and instead focus on tackling the growing humanitarian crisis in a country that has seen GDP shrink by 30% over the past three years.
But as The Economist noted, Venezuela is in a very different position from the one that prompted Argentina to default in 2001. Back then, Argentina had few precious assets abroad that were at threat of seizure. Venezuela, in contrast, has an abundance of them, including US-based refineries, which would surely be seized should it default on its debt.
Washington’s crippling sanctions are also likely to act as a disincentive to default, since Caracas would be barred from borrowing much-needed cash from US banks.
All of which suggests creditors on Monday may prefer to kick the can down the road – until the next crisis meeting.
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