Holders of Venezuelan bonds who have been ignoring alarming predictions of a default for years may choose to bury their heads in the sand and give President Nicolás Maduro an indefinite extension on paying the debts, according to experts on the country’s financial crisis.
Experts told el Nuevo Herald that debt holders may decide to bet on a Venezuelan government promise to pay all its obligations — it owes about $150 billion — hoping to avoid a legal battle that could take years to settle.
Venezuela already is technically in default on some of its bond issues, which allows bondholders to join forces and file a complaint.
“But the creditors are not demanding payment,” said Fernando Freijedo, a New York-based Latin America analyst for The Economist Intelligence Unit.
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Even though billions of dollars are at stake, the bondholders’ move to not file claims has its own logic.
“Why would you go into a lengthy court battle, which is going to take a lot of time and which, based on Venezuela's behavior in recent years, will not be easy because it will not plead guilty quickly?” asked Freijedo. “Instead it will appeal and appeal … to delay as much as possible, and in the end you'll be paid 20 or 30 percent. But you can wait just a few weeks and, just maybe, get paid 100 percent,” he said. “For now, that seems to be the calculation of creditors.”
Analysts said bondholders may be willing to wait months, as long as they are convinced that the Venezuelan government will pay at some point.
Under the bonds’ provisions, 25 percent of the creditors can decide to go to court to force an “acceleration” of the payments, said Russel Dallen, managing partner of Caracas Capital.
But bondholders for now appear willing to wait and see whether the Venezuelan government will meet its promise to pay, he added.
Triggering the “acceleration” of bond payments could have a potentially devastating impact on the economy because of “cross default” clauses — meaning that if either the government or its PDVSA oil monopoly defaults on one bond issue, they are considered to have defaulted on all issues.
That could lead to a massive wave of demands and seizures that would totally paralyze the country's oil exports.
On Tuesday, Standard & Poor's announced the country was in “partial” default on its debt obligations.
The government's failure to make a $200 million payment could eventually lead to a broader default, at a time when the country struggles to make payments on foreign debt estimated at more than $150 billion.
Standard &Poor's, the first risk assessment company to declare the partial default, made the announcement after the 30-day grace period for paying the coupons due on 2019 and 2024 bonds.
The company made the decision one day after a Caracas meeting with creditors where government officials failed to submit a detailed plan for renegotiating the government and PDVSA debts.
Although creditors left the 25-minute meeting disappointed, the government declared that “the process of refinancing the foreign debt started with a resounding success.”
The principal negotiator, Vice President Tareck El Aissami, promised to establish technical groups to “evaluate proposals” for the next meetings but gave no dates, according to participants.
In comments later on state television, El Aissami accused the Trump administration of trying to “close the way” for the Latin American country by imposing U.S. financial sanctions that were unveiled in August.
Any eventual decision by bondholders to file a demand against Venezuela would increase the risk of lawsuits to seize government and PDVSA properties, said Diego Moya Ocampos, senior Latin America analyst for IHS Markit in London.
And the chances that Venezuela can put its finances in order any time soon don't look good, Moya Ocampos said.
“The worst part is that after the announcement of a restructuring, there's been no formal proposal of a credible economic plan that reassures the bondholders that Venezuela will pay the debts,” he said.
“What is clear is that there's been a number of delays in the payments until now, that the announcement of a restructuring has generated more uncertainty, and that the meeting with El Aissami Nov. 13 generated more questions than answers,” Moya Ocampos said.
Follow Antonio María Delgado on Twitter: @DelgadoAntonioM