PDVSA bonds are unconstitutional -Venezuela's National Assembly
Venezuela's opposition snubs PDVSA bondholders
Petroleumworld 10 16 2019
Venezuela's opposition-controlled National Assembly signaled to bondholders today that it will not honor a $914mn principal and interest obligation because it says the debt issuance is unconstitutional.
The controversial PDVSA (PdV) 2020 bond issued by Venezuela's national oil company PdV is collateralized by the firm's US refining unit Citgo, which is nominally in the hands of the Opec country's self-proclaimed interim president Juan Guaido, whose authority is recognized by Western countries, including the US.
PdV itself is still controlled by Guaido's nemesis, President Nicolas Maduro, who has resisted a Western diplomatic campaign and US sanctions aimed at removing him.
The bond obligates PdV to pay $842mn in principal and $72mn in interest on 27 October. The interest has a 30-day grace period, but the principal does not.
The opposition already paid $72mn in interest on the PdV 2020 bond in May, out of fear that the Maduro government would default and lose the asset.
Critics on Wall Street say the May 2019 interest payment casts doubt on the assembly's case against the legality of the debt.
The funds used by the opposition to pay the interest came from PdV's frozen US accounts that remain tightly controlled by the US Treasury. It is not clear how much money PdV still has locked up in the US, but the amount is not believed to approach what is required to satisfy the bond.
At the time of the May interest payment, Maduro's opponents brushed off precedent concerns, insisting that he would be ousted before the more daunting October obligation came due. With Maduro now still in power, the Guaido team had grappled for weeks over how to handle the looming debt payment. Lobbying efforts to persuade the White House to issue an executive order or tweak the sanctions to protect Citgo from seizure by creditors have fallen flat. And tentative talks with bondholders to renegotiate the principal did not yield any proposals "that would not compromise the national interest," a senior opposition figure told Argus .
In a resolution approved today in Caracas, the assembly declared that the bond violates article 150 of the constitution because it was not approved by the legislative body as required for contracts deemed to be in the national public interest.
More controversially, the resolution goes on to declare that the PdV 2020 bond also violates constitutional articles 311 and 312 because its financial conditions are "harmful owing to the irrationality in which PdV structured the swap and subsequent issuance."
The bond was born out of a 2016 swap with bondholders, which at the time was lauded in a local television interview as a "very safe" bet by Alejandro Grisanti, a Venezuelan economist who is now a member of the opposition's ad hoc board of directors for PdV.
There was no immediate response from a creditors committee that represents large institutional investors that carry the bonds.
A financial sector executive close to the bondholders fired back privately that today's resolution is an effective repudiation of the debt, and maintained that the opposition case against paying "irrational" obligations would not be upheld in US court.
Longer term, critics said the move would hurt the opposition's future effort to rebuild Venezuela by alienating lenders. Reconstruction of Venezuela's ravaged economy and oil sector is estimated to cost as much as $200bn.
Among the Wall Street institutions holding the PdV 2020 bonds are Fidelity, T. Rowe Price, Blackstone and Ashmore.
In today's resolution, the assembly reiterated that it has repeatedly questioned the validity of all "irresponsible" debt in the national interest that lacks legislative approval, and noted that all such debt is subject to investigation, "including, among others, an agreement signed with Rosneft Trading."
Russian state-controlled Rosneft is the only company specifically mentioned in the new resolution. The firm has emerged as the leading lifter of Venezuelan crude in recent months, taking part of the supply as payment for oil-backed loans. Most other buyers have shunned Venezuela because of US sanctions issued in late January 2019, even though these have no direct secondary component. The sanctions also prohibit US companies from buying Venezuelan crude and any transactions from non-US companies that make use of the US financial system.
Story from Argus Media
argusmedia.com / 10 15 2019
We invite you to join us as a sponsor.Circulated Videos, Articles, Opinions and Reports which carry your name and brand are used to target Entrepreneurs through our site, promoting your organization’s services. The opportunity is to insert in our stories pages short attention-grabbing videos, or to publish your own feature stories.
Copyright© 1999-2019 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.
Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write to firstname.lastname@example.org
By using this link, you agree to allow PW
to publish your comments on our letters page.
Any question or suggestions,
please write to: email@example.com
Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels