S&P Rules Venezuela in Default on Interest Payment

Adjust Comment Print

The actions from the ratings companies came after an odd spectacle in Caracas, where bond investors who made the trek to hear the country's restructuring proposal found a red-carpet welcome, an honor guard salute and gift bags stuffed with state-produced chocolate and coffee. "It will be presided by our companion Tareck El Aissami. and the presidential commission that I have assigned to this task", he said.

Measures by U.S. President Donald Trump's administration against the Maduro government, which it accuses of being a "dictatorship" that has impoverished Venezuela's 30 million people through corruption and incompetence, effectively bar U.S. banks from rolling over the country's debt into new bonds. Fewer than 100 creditors showed up at the downtown Caracas office building, and at least one hightailed it out after realizing that two government officials sanctioned by the US were in attendance, fearful of violating rules governing interactions with them. S&P lowered two issues' ratings to "D" (default) and said there is a one in two chance that the government. "Default will never reach Venezuela". Even though state-run power utility Corpoelec was declared to be in default on Friday for failing to make an interest payment on time, investors were heartened when the company said it had sent the money.

S&P said it had declared Venezuela in "selective default" because it failed to make $200 million in payments on two global bond issues by the end of a 30-day grace period, which fell on November 12.


"While our models have been pointing to Venezuela default as inevitable, it is incredibly sad to finally arrive at this devastating point", said Russ Dallen, managing partner at investment bank Caracas Capital Markets, which trades Venezuelan bonds. Investors last week were optimistic about the meeting. Most of the attendees were locals, and none were allowed to ask questions.

Still, some market participants were already referring to Monday's missed payments as the long-awaited default for a government that has only about $10 billion in reserves and has been scrambling for months to meet its debt obligations. "It likely will be just an information session, in which bondholders probably would be more interested in hearing whether the past-due coupons will be paid than how a restructuring can be done".

El Aissami blamed an worldwide financial blockage for making it hard to get the money to investors, citing a move by Citigroup Inc.to close some of the country's accounts, Euroclear freezing PDVSA bond payments and Deutsche Bank AG's decision to discontinue its role as a correspondent bank this month. Spokesmen at Euroclear and Citigroup didn't respond to requests for comment.


Adding to the political pressure against Maduro, the UN Security Council met on Venezuela at the behest of the United States.

A committee of the International Swaps and Derivatives Association (ISDA), meanwhile, is weighing whether holders of PDVSA debt with default insurance - credit default swaps - can collect payment.

Permanent council members Russian Federation and China boycotted the meeting, as did non-permanent members Bolivia and Egypt.


Comments