Venezuela bondholders inch toward
$50 billion debt default showdown, by Maiya Keidan, Corina Pons, Paul Kilby, 4/18/18, Reuters.
IN FLUX - 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.
‘HUNGER
BOND’ OUTRAGE - “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.”
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.
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. 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.
“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.
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.
Norb Leahy, Dunwoody
GA Tea Party Leader
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