Rodrigo Campos and Mayela Armas, Reuters

NEW YORK/CARACAS
EnergiesNet.com 11 03 2023

Venezuela and its debt has been thrust back into the spotlight after the United States removed sanctions late last month that had banned U.S. funds and banks from trading Caracas’s debt since 2019.

The sanctions were relaxed after the government of President Nicolas Maduro and the opposition agreed on guarantees for presidential elections next year, though Washington has said it is willing to reinstate sanctions if Maduro does not comply with several other conditions by the end of November.

Venezuela has an estimated $167.5 billion of debt which is currently in default.

The relaxed sanctionsmean some $60 billion of sovereign bonds and bonds from state-owned energy company Petroleos de Venezuela (PDVSA) can now be freely traded on international markets again.

Here are some key facts about the debt, who holds it, and what could happen next.

HOW MUCH IS OWED AND TO WHOM?

Once interest arrears are added to the sovereign and PDVSA bonds, their value rises to $90 billion.

A dozen sovereign bonds and eight from PDVSA, all issued before August 25, 2017, are part of the widely followed JPMorgan EMBI index family that most major emerging market (EM) debt investors use as a performance benchmark.

Those who own the bonds include many of the top EM funds including Pimco, Fidelity, GMO, Ashmore, Amundi and BlackRock as well as a number of smaller distressed-debt focused hedge funds.

Smaller funds outside the U.S. recently made a push to increase their relatively small exposure to these bonds in hopes a restructuring would eventually happen.

WHAT TYPES OF DEBT ARE OUTSTANDING?

Some of Venezuela’s bonds have collective action clauses, or CACs, which are designed to prevent a small number of bondholders digging their heels in and preventing a restructuring.

For many of Venezuela’s bonds, the CACs deem that 75% of bondholders need to consent to restructuring while in a few cases the threshold is 85%.

Neither the government’s bonds issued prior to 2003 or any of PDVSA’s notes have CACs, however.

The PDVSA bond maturing in 2020 VE151299784= that has a guarantee from Venezuela-owned oil refiner Citgo Petroleum has $1.7 billion outstanding and is trading around 84 cents on the dollar, according to LSEG data.

Venezuela-related expropriation claims at U.S. courts pursuing Citgo’s assets surpass $23 billion from 21 creditors while the company’s value, according to its parent company, is between $32 billion and $40 billion. Citi’s estimate is between $12 and $21 billion.

The U.S. Treasury Department’s three-month extension on a protection from creditors awarded to Citgo paves the way for settlements with creditors, but does not stop an auction of shares in Citgo’s parent ordered by a U.S. court.

HOW MUCH ARE DEBT AND OUTPUT?

Total external debt of Venezuela and PDVSA,including bilateral loans and debts associated with nationalizations, is more than double what it owes on defaulted bonds.

Citi estimates the total is between $139 and $158 billion including interest, while Morgan Stanley sees total debt near $167 billion. Domestic debt is considered negligible.

The International Monetary Fund estimates Venezuela’s nominal gross domestic product at $92.2 billion this year and $97.7 billion for 2024. Nominal GDP peaked at $372.6 billion in 2012 and dropped to $43.8 billion in 2020 according to the IMF.

IS RESTRUCTURING NEAR?

The short answer is no, observers say, as lots of details are up in the air. Importantly, restructuring involves the issuance of new debt that ‘replaces’ the old and trading Venezuelan debt in the primary market is still banned.

There are also commercial partner claims, such as the ones that resulted in the auctioning of Citgo shares, which could make it a long journey towards a restructuring.

WHAT’S THE RECOVERY VALUE?

Pricing the bonds may depend on how quickly the economy recovers. Given Venezuela’s large oil industry, a value-recovery instrument like the one being used in Suriname’s restructuring is possible, as are GDP-linked warrants.

Oil production was 1.5 million barrels per day before sanctions, but recovery to that level will not happen in the short-term.

With many open variables, recovery values vary widely. Citi views the sovereign bonds between the mid-30s and low 40s, with an upside from current prices varying from zero to 62%.

Reporting by Rodrigo Campos in New York, Mayela Armas in Caracas and Marc Jones in London; additional reporting by Marianna Parraga in Houston; Editing by Rod Nickel

reuters.com 11 02 2023