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Andean development agency CAF to seize Venezuela's stock

The CLXVIII session of the Board of Directors, CAF - Latin American Development Bank, Buenos Aires,,
Argentina, March 3, 2020.

By Patricia Garip/Argus

Petroleumworld 03 05 2020

Andean development agency CAF plans to seize part of Venezuela's paid-in capital to cover delinquent debt, highlighting the loss of the Opec country's multilateral credit ties that will be critical to a future reconstruction.

The board of Caracas-based CAF, which approved the controversial measure at a meeting in Buenos Aires yesterday, is hoping to avoid a further credit rating downgrade, according to multiple political, diplomatic and financial sector sources.

CAF gave Venezuela six months to pay or restructure about $180mn in arrears before the stock would be shifted into the agency's hands.

Neither CAF nor the government of Venezuelan president Nicolas Maduro commented.

Venezuela's parallel opposition administration, led by National Assembly speaker and Western-recognized interim president Juan Guaido, denounced the CAF operation as unconstitutional.

"Only acting president Juan Guaido, with prior authorization from the National Assembly, can authorize the sale of shares in CAF," Guaido's "ad hoc" attorney general Jose Ignacio Hernandez told Argus . "Any sale carried out by the Maduro regime, without the control of the National Assembly, will not be recognized."

Hernandez is a key figure in Guaido's skeleton interim administration based outside of Venezuela.

Unlike the Washington-based Inter-American Development Bank (IDB), CAF has not recognized Guaido.

On 22 January, Fitch Ratings downgraded CAF's long-term issuer default rating and placed the agency on negative outlook, citing Venezuela's overdue debt since 2018, in addition to sovereign credit rating downgrades of other members such as Argentina.

Fitch Ratings declined to comment on CAF's plan to take over part of Venezuela's stock, but told Argus that "Any development that would lead to improved confidence that Venezuela will continue to honor its debt service obligations on time and/or a reduction in the size of the exposure would be supportive of the rating."

As of September 2019, Venezuela represented 14.2pc of CAF's loan portfolio and 16pc of its $5.3bn in total paid-in capital, second only to Colombia, according to the agency's third quarter 2019 financial report.

Outside of state-to-state lending, debt-ridden Venezuela is frozen out of commercial and multilateral credit. The government and state-owned oil company PdV have more than $150bn in overdue debt.

Until recently, CAF was an outlier. Late last year, a proposal for a $350mn emergency electricity sector loan circulated among Venezuelan deputies in the opposition-controlled assembly. The loan, which was never approved, would have restructured part of Venezuela's CAF debt. The proposed funding was earmarked to repair part of Venezuela's power grid, focusing on the western oil-producing state of Zulia.

Established in 1970, CAF is owned by 19 countries, 17 in Latin America and the Caribbean, plus Spain and Portugal, in addition to 13 private banks in the region.

Reporting by Patricia Garip from Argus Media
03 04 2020



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