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Venezuela is Defaulting, Maybe . . . Maybe Not

posted by Mitu Gulati

The news out of Venezuela with regards to its debt situation has been keeping investors (who love the high returns, but dislike the uncertainty) in a tizzy, to put it mildly. But today's news was perhaps the most bizarre yet.  Mr. Maduro, on the one hand, announced that PDVSA (the big state-owned oil company that produces 95% of Venezuela's foreign currency earnings) was making its latest payment to creditors (due today) and, on the other hand, announced that a restructuring was being planned immediately.

What? Why? How?

If the plan is to restructure because there is no money, then why were the payments today (and a few days ago) made? That makes no sense to my little brain.

And how in the world is there going to be a restructuring when there are US sanctions prohibiting just that? Through some Russian proxy? Or Chinese? Via a loophole in the sanctions regime?

Katia Porzecanski, sovereign debt guru, has a super article up on this puzzle already at Bloomberg (with co authors Patricia Laya, Ben Bartenstein, and Christine Jenkins).


Incredulity seems to be the most prevalent response among market players in Caracas. Many outright disregard Maduro's announcement, based on the perceived absurdity of committing to pay PDVSA's 2017, as well as 2020 bonds, which was due one week before. I might add that at least a pinch of wishful thinking could also be a factor in investor's analysis of the dire situation. The facts, however, seem to suggest that the liquidity crunch has finally catched up with a Gov't that has been dragging its feet in the past several weeks when it comes to meeting its obligations. Defaulting on bullion swaps with DB, certainly points to a very real and actual struggle to keep head above water and current with their external indebtedness. But perhaps what is more troubling, is the timing for this announcement, which comes in the wake of the sanctions restricting the ability to renegotiate, restructure and rollover Venezuela's debt. Could Caracas be trying to precipitate a widespread crisis and force an abroupt endgame?

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