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Venezuela is already late on $350 million of interest payments.
Venezuela is already late on $350 million of interest payments.

Venezuela Behind on Interest Payments Worth $350m

Venezuela Behind on Interest Payments Worth $350m

Ever since the price of oil collapsed in mid-2014, there’s been a broad consensus among the bond-market crowd that Venezuela was going to default. Not immediately, they said, but at some point down the road.
Three years on, that time may have arrived. On Friday, the government-run oil giant PDVSA owes $985 million. Six days later, it’s on the hook for another $1.2 billion. Not only is that a daunting sum for a country whose foreign-currency reserves recently dipped below $10 billion for the first time in 15 years, but it figures to be a logistical nightmare too, Bloomberg reported.
Increasingly isolated by US financial sanctions that have spooked banks and other intermediaries in the bond payment chain, Venezuela has already fallen behind on interest payments worth $350 million that were due earlier this month. Those payments had a grace period—a buffer of sorts that gives the country an additional 30 days to work out the technical glitches and deliver the cash.
The principal portions of the payments owed over the next two weeks contain no such language. Miss the due date and bondholders can cry default. Prices on the notes due Nov. 2 acutely reflect those risks: They’re at just 92 cents on the dollar.
The government had another $237 million in interest payments come due Saturday, and the National Public Credit Office has yet to announce their payment. A delay in those payments would bring the total in arrears to $587 million.
A default would be a painful end to what has proven one of the more profitable, and strange, trades in emerging markets over the past two decades. While the plunge in crude prices deepened an economic collapse and triggered a humanitarian crisis unprecedented in the nation’s history, President Nicolas Maduro, like his predecessor and socialist mentor Hugo Chavez, has been determined to meet all foreign bond payments. He’s cut imports to free up hard currency for debt payments, tapped China and Russia for loans and mortgaged some of the country’s gold stash.
And because yields on the bonds have been so high, the returns have been eye-catching: over 9% per year on average over the past 20 years. This combination—outsize profits for Wall Street traders and shortages of food and medicine for Venezuelans back on the ground—has been so jarring that it even led to the coining of a new term for the nation’s debt: hunger bonds.

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