Crisis-plagued Venezuela has suffered another blow as a committee of creditors has ruled that state oil company PDVSA defaulted on its debt — a decision that triggers payment of default insurance to investors.
The International Swaps and Derivatives Association (ISDA) has examined three missed PDVSA bond payments at the request of investors, and ruled on Thursday that "a Failure to Pay Credit Event had occurred," according to a statement.
ISDA's Determinations Committee for the Americas, comprised of 15 members, including finance industry heavyweights JPMorgan, Goldman Sachs, Elliott Management, Citadel and AllianceBernstein, voted unanimously in favor of the decision.
For several weeks now, Venezuela has been taking advantage of the "grace periods" for late payments on its bonds as the stricken country tries to stay current on its obligations. Caracas has only $9.7 billion (€8.2 billion) in foreign reserves and needs to pay back at least $1.47 billion in interest on various bonds by the end of the year, and another $8 billion in 2018.
Struggling with an estimated $150 billion in overall debt, the government of President Nicolas Maduro called creditors to a meeting Monday to discuss restructuring payments, but offered no concrete plan. Venezuela and PDVSA already were declared by major debt ratings agencies to be in "selective default" due to the late payments.
Debt restructuring efforts
ISDA's decision will trigger debt default insurance — so-called credit-default swaps (CDS) — that track Venezuela and PDVSA's debts. Details of how they will be settled will be decided at another meeting of the Determinations Committee scheduled for Monday afternoon.
About 70 percent of Venezuelan bondholders are North American, according to government figures. There are about $60 billion in PDVSA and sovereign bonds outstanding, and investors buy CDS as a hedge or insurance on that debt.
On Wednesday, the government already signed a debt restructuring deal with Russia for a little over $3 billion in official debt, but observers say that will at best help resolve some payments in the short term. Russia and China are the two main creditors and allies of Venezuela, which owes them an estimated $8 billion and $28 billion respectively.
Venezuela depends on PDVSA's oil exports for about 90 percent of its foreign exchange earnings, but those earnings have been falling sharply due to a lack of investment to update infrastructure even as oil prices have recovered. As a result of the country's deteriorating finances, the population is suffering severe shortages of food and medicine because of a lack of money to import them.
But unlike Argentina, which battled creditors in US courts for over a decade after its 2002 default, Venezuela has valuable assets in the US at risk of seizure, including oil exports and Citgo with its three refineries, owned by PDVSA.
uhe/mds (Reuters, AFP)