World Economy

S&P Declares Venezuela in Selective Default

Tareck El Aissami (C) offered bondholders no concrete proposals for debt restructuring.Tareck El Aissami (C) offered bondholders no concrete proposals for debt restructuring.

Standard & Poor’s declared Venezuela in “selective default”, after it failed to make $200 million in payments on its global bonds, becoming the first credit ratings agency to do so. The agency said it acted after a 30-day grace period had passed on payments on two bonds.

“We have lowered two issue ratings to ‘D’ (default), and we lowered the long-term foreign currency sovereign credit rating to ‘SD’ (selective default),” the agency said, AFP reported.

S&P’s verdict came after the Venezuelan government met with international creditors in Caracas but offered no concrete plan for restructuring its $150 billion debt.

Participants at the meeting told AFP that officials said the government intended to form working groups to evaluate short- and mid-term debt renegotiation proposals, but gave no specifics.

“We would very likely consider any Venezuelan restructuring to be a distressed debt exchange and equivalent to default given the highly constrained external liquidity,” S&P said.

“In addition, in our opinion, US sanctions on Venezuela and government members will most likely result in a long and difficult negotiation with bondholders,” it said.

Besides the two bond payments it has defaulted on, Venezuela is overdue on four other debt payments but they were still within the 30 day grace period, S&P said. Ratings on those bonds also will be lowered to ‘D’, of default, if not paid on time, it said.

The unpaid obligations total $420 million, the agency said.

  Creditors in the Dark

Pressure is growing on Venezuela’s Socialist government after investors left a Caracas meeting on Monday none the wiser about how it will avoid a looming $60 billion bond default and Europe imposed sanctions on the country for human rights abuses.

Yet if Caracas is worried that default could lead to creditors seizing its oil exports, and that EU sanctions could escalate to include asset freezes and travel bans, it is not showing it.

President Nicolas Maduro called the EU sanctions “stupid”. Meanwhile, vice-president Tareck El Aissami, who is under US sanctions for alleged drug trafficking and was the only government official to speak at the bondholder meeting, offered no concrete proposals for debt restructuring.

Instead, financiers were offered chocolates. “Crazy stuff”, said one emerging markets bond manager, who did not attend the meeting. “But it doesn’t surprise me.”

For one, it may have agreed a bailout from Russia that could help stave off an official declaration of default on Tuesday by ISDA, the derivatives association, following a late $1.1 billion bond payment and skipped $47 million interest payment last week. Venezuela and Russia are due to announce the terms of their $3 billion bilateral debt restructuring on Wednesday.


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