Venezuela bondholders inch toward
$50 billion debt default showdown, by Maiya Keidan, Corina Pons and Paul Kirby,
4/18/18, Reuters
LONDON/CARACAS (Reuters) -
Investors holding billions of dollars in defaulted Venezuelan bonds have formed
at least one bondholder committee that is seeking a financial adviser,
according to several sources familiar with the matter, in a sign they may be gearing up for a legal
dispute.
Venezuela's
President Nicolas Maduro gestures during a rally with supporters in Caracas,
Venezuela April 5, 2018. Miraflores Palace/Handout via REUTERS
President Nicolas Maduro’s
government began quietly halting interest payments on some $50 billion in
publicly traded debt last year in an effort to save hard currency for the
collapsing socialist economy, which is suffering from hyperinflation.
Investors have been slow
to move against Venezuela and its state oil company, PDVSA, in part because
Maduro has shown no signs of advancing the kind of reforms - including an
overhaul of the oil industry - needed to restore economic stability.
The committee that is
close to naming an adviser recently met in London and will meet again this week
in Washington, possibly as early as Wednesday, the sources said.
“Clearly the situation is
unsustainable,” said an investor source familiar with the situation. “Venezuela
is in a situation where it will break one way or another.”
The creditors “want to be
ready to be part of getting that sorted out,” the source said. Another source
said investment bank Houlihan Lokey Inc (HLI.N) is the front-runner for the financial adviser job but a decision is not yet final. Houlihan
Lokey did not immediately respond to a request for comment.
Another source, meanwhile,
said other creditors had formed at least one other committee. The formation of
the committees and appointment of advisers could signal investors are
marshaling forces for an eventual legal dispute with Venezuela - a move known
as an acceleration that requires backing from holders of 25 percent of a given
bond.
That could unleash
international court battles similar to a 15-year dispute between creditors and
Argentina after it defaulted on its sovereign debt in early 2002.
Sources said any legal
offensive is unlikely to happen until after Venezuela’s May 20 presidential
election, which its main opposition coalition is boycotting on the grounds that
the vote is stacked in favor of Maduro.
“I think the idea is to be
ready for whatever comes down the pike after the elections,” said one of the
sources, speaking about the meeting in Washington. “It’s better to share
information.”
He and other sources said
the committee membership was still in flux and that hedge funds with a more
aggressive stance toward Venezuela than the institutional shareholders who now
dominate could eventually join.
The group close to naming
an adviser includes 12 of the 15 largest creditors, according to two sources
familiar with the matter.
The biggest holders of
Venezuelan debt include UK asset manager Ashmore Group
(ASHM.L), as well as BlackRock Inc (BLK.N), T. Rowe Price Group Inc (TROW.O) and Northern Trust Corp (NTRS.O).
Venezuela and PDVSA are in
default on a combined total of $52 billion in bonds as a result of failure to
make some $2.3 billion in interest payments, according to Thomson Reuters data
and local financial consultants.
Venezuela this month
angered investors by making an interest payment on the PDVSA 2022 bond - most
of which were acquired by Goldman Sachs Group Inc (GS.N) - despite being in default on most of its debt.
The move to service debt on those securities, dubbed “hunger
bonds” in a reference to the country’s worsening humanitarian crisis, has
spurred complaints of discrimination from other investors holding bonds in
default, according to two fund managers who focus on Venezuela.
“The government is
starting to have the capacity to pay what it wants and to not pay what it
doesn’t want,” said Alejandro Grisanti of Venezuelan consultancy Ecoanalitica.
“That’s the perfect incentive for a lawsuit.”
Maduro’s government had in
the past said U.S. sanctions, which do not directly block routine operations
such as bond payments, had prevented it from getting some $2 billion in
outstanding interest payments to investors.
Creditor committees would
help push an acceleration, or demand that the issuer pay down the principal,
because with the exception of Goldman and the “hunger bonds,” no single
creditor holds such a large percentage of any single bond. That means that in
most cases, creditors would have to join forces to accelerate.
In addition, U.S.
sanctions block U.S. citizens from buying newly issued Venezuelan bonds. That
effectively shuts down the possibility of exchanging defaulted debt for new
paper that matures down the road, which is the most common form of resolving
sovereign debt disputes.
Writing by Brian
Ellsworth; additional reporting by Rodrigo Campos, Karin Strohecker, Tom Hals
and Marc Jones; editing by Christian Plumb and Jonathan Oatis
Norb Leahy, Dunwoody
GA Tea Party Leader
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