“If you are a little confused . . . don’t feel bad,” added Russ Dallen of Caracas Capital, a Venezuela debt specialist. In part, the confusion stems from the complexity of Venezuela’s debts, which have been issued by various entities, with varied legal clauses, to multiple parties. It owes $64bn to bondholders, more than $20bn to allies China and Russia, $5bn to multilateral lenders such as the InterAmerican Development Bank, and tens of billions to the importers and service companies that keep the all-important oil industry pumping and the regime afloat.
“Si está un poco confundido. . . no se sienta mal “, agregó Russ Dallen de Caracas Capital, un especialista en deuda de Venezuela.
En parte, la confusión proviene por la complejidad de las deudas de Venezuela, que han sido emitidas por varias entidades, con cláusulas legales variadas, en múltiples partes. Debe $ 64 mil millones a los tenedores de bonos, más de $ 20 mil millones a los aliados de China y Rusia, $ 5 mil millones a los prestamistas multilaterales como el Banco Interamericano de Desarrollo y decenas de miles de millones a los importadores y compañías de servicios que mantienen a la importante industria petrolera bombeando y al régimen a flote.
“When the ratings agencies say you’re in default, that’s a bad thing,” says Venezuelan debt expert Russ Dallen, who heads the Miami investment firm Caracas Capital Markets.
But Dallen also points out the agencies didn’t say Venezuela was in full-blown default. They used the term “selective default,” because this month Venezuela and its state-run oil company failed to make two big bond interest payments on time.
“We’re not sure whether the cat is alive or dead,” Dallen says. “It’s partly in default, but maybe they’re going to get out of default. They’re kind of putting it in this gray area because Venezuela is continuing to say that they’re going to pay.”
Venezuela today is mired in the world’s worst economic collapse – but it has kept making payments on its $150 billion foreign debt. In fact, it puts those payments ahead of importing food, medicine and other desperately needed goods.
That’s because not making those payments – and going into default – means creditors can start seizing Venezuela’s all-important oil assets the way a repo man can come take your car.
“Everything gets more aggressive if that happens,” says Dallen. “They start trying to seize oil shipments on the high seas, because their job is to collect their debt.”
Here’s another reason creditors believe – or want to believe – Venezuela will keep making its payments. Venezuela’s economic crisis makes buying its debt very risky. But that also makes the rate of return on that investment very lucrative.
“A yield above 30 percent,” says Dallen. “It’s so high that it’s essentially paycheck loans – it’s those kind of usurious rates.”
Russ Dallen, who oversees the Venezuela Opportunity Fund, last month told clients for the first time in his career to buy credit-default swaps to protect against a default.
“They are hitting bottom,” said Dallen, the managing director at Caracas Capital. “No one appears to be bailing them out this time.”
Russ Dallen, quien supervisa el Fondo de Oportunidades de Venezuela, les dijo el mes pasado a sus clientes por primera vez en su carrera que comprarán seguros contra cesación de pagos, o credit default swaps, para protegerse contra un impago. Gramercy Funds Management, que en 2015 comenzó un fondo de estrategia de oportunidad de Venezuela, vendió sus activos venezolanos a finales del año pasado. Y Ashmore Group Plc, conocido por su comentarios optimistas sobre Venezuela, redujo su exposición durante los últimos 12 meses.
“Están tocando fondo”, dijo Dallen, director gerente de Caracas Capital. “Nadie parece estar rescatándolos esta vez”.
There is about $1.3 billion in outstanding credit default swaps for Venezuelan sovereign debt and about $250 million for PDVSA, as the state oil company is known, according to Caracas Capital.
Under the bonds’ provisions, 25 percent of the creditors can decide to go to court to force an “acceleration” of the payments, said Russell 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.
Los expertos dijeron que eso podría ser una situación que se extienda por incluso meses siempre y cuando los tenedores de bonos continúen convencidos de que el régimen bolivariano va a pagar.
Bajo las cláusulas de la mayoría de bonos venezolanos, la decisión de ir a las cortes y disparar “la aceleración” de los pagos puede ser tomada por un 25% de los acreedores, explicó Russell Dallen, socio gerente de la firma Caracas Capital.
Pero por el momento, los tenedores de bonos parecen estar dispuestos a esperar a ver si el régimen de Caracas va a cumplir con su promesa de pagar, dijo.
“When the ratings agencies say you’re in default, that’s a bad thing,” says Russ Dallen, who heads the Miami investment firm Caracas Capital Markets. “But ultimately it’s the bondholders who it has to matter to. And if Venezuela is telling them we’re going to pay you – and you believe them – then you’re going to sit on your hands and wait.”
Dallen says if Venezuela’s bondholders decide the regime can’t pay up anymore, they’ll start seizing the country’s only real asset: oil.
“Everything gets more aggressive at that point,” he says. “They’re going to start trying to seize ships on the high seas and oil shipments and payments, because their job is to collect their debt.”
Russ Dallen of Caracas Capital, a boutique investment bank that follows Venezuela, said there were signals that the government was shifting its stance on the possibility of defaults. Previously, it has insisted that all payments would be made. But at a press conference on Tuesday, Jorge Rodríguez, the new information minister, said Venezuela would continue to meet its debt obligations “but not by mistreating our people as in times past.”
“They are planting the first seed,” Mr Dallen said.
Although PDVSA was excluded from the agreement with Russia, its bonds have been trading at higher prices than similar bonds issued by the sovereign. PDVSA faces a much lighter repayment schedule this year and next, and is a vital source of earnings for Caracas.
“PDVSA is the moneymaker so Caracas will want to keep it safe,” Mr Dallen said
A receita que a Venezuela obtém com a exportação de petróleo é insuficiente para honrar a dívida externa do país e atender às necessidades básicas de seus 32 milhões de habitantes, disse nesta segunda-feira Russ Dallen, dono do banco de investimentos Caracas Capital Market, especializado no país. “Eles ganham o suficiente para pagar a dívida. Mas, se eles pagarem a dívida, não têm dinheiro para mais nada.”
A Organização dos Países Exportadores de Petróleo (Opep) anunciou nesta segunda-feira que a produção venezuelana caiu ao mais baixo patamar em três décadas no mês passado, para 1,96 milhão de barris diários. Segundo Dallen, metade desse volume não cria receita corrente para o país: 500 mil barris vão para o consumo doméstico, a preços subsidiados, e outros 500 mil são enviados para China como pagamento de empréstimos concedidos no passado.
“Sobra cerca de 1 milhão de barris diários. Ao preço de US$ 44,19 cada um, são US$ 44 milhões ao dia ou US$ 1,33 bilhão ao mês”, observou Dallen. Além da dívida, a Venezuela precisa remunerar as empresas estrangeiras que participam da exploração do petróleo no país.
Até agora, o presidente Nicolás Maduro havia dado preferência aos pagamentos da dívida, em detrimento das necessidades dos venezuelanos. “A população está morrendo de fome, não há remédios e muitos estão fugindo para o Brasil e outros países vizinhos”, disse Dallen.
Maduro anunciou que 414 pessoas participariam da reunião, na qual estariam representados detentores de 91% da dívida em bônus. Dallen disse que sua lista chegava a 194. “É impossível que 91% dos credores estivessem representados”, disse.
Mas Dallen ressaltou que não está claro se essa será a opção dos credores e mencionou o exemplo da renegociação da dívida argentina. Nesse caso, os donos de bônus emitidos na reestruturação da dívida esperaram um ano e meio até receberem os pagamentos no governo Mauricio Macri. “Eles podem preferir continuar a receber aos poucos em vez de pedir a aceleração do pagamento, mas só recebem em cinco ou dez anos.”
“While our models have been pointing to Venezuela default as inevitable, it is incredibly sad to finally arrive at this devastating point,” said Russ Dallen, managing partner at investment bank Caracas Capital Markets, which trades Venezuelan bonds.
Russ Dallen, managing partner of Caracas Capital Markets, said several U.S. investors he represents told him they wouldn’t bother attending. One said he couldn’t get a visa on such short notice and another reported planning to send an intern, citing the lack of information.
And the sanctions might even help dialogue in Venezuela, according to an interview with debt expert Russ Dallen in Americas Quarterly. “… the Treasury Department in recent days has said that the U.S. would consider licensing new bonds if they are approved by the Venezuelan National Assembly, which Maduro has been thwarting at every opportunity. This gives the opposition something to go to the government with and say, “If you recognize the national assembly and treat us with respect we might be willing to do this.” Interestingly, it’s turned the sanctions into a great negotiating tactic. It’s a great flanking maneuver from the U.S. government.”
Venezuela is mired in a four-year recession, with its currency reserves at their lowest point in decades, triple-digit inflation and a deepening humanitarian crisis that includes shortages of food and medicine. The outlook for the country’s economy worsened on November 13, when two leading credit ratings agencies, Standard and Poor’s and Fitch, declared the country and its state-run oil company, Petroleos de Venezuela (PDVSA), respectively, to be in default. The announcements came after Venezuela missed $280 million in interest payments due on bonds.
Also on November 13, the European Union approved an arms embargo against the country, and is preparing sanctions following irregularities in last month’s elections. The UN Security Council convened an important meeting with OAS Secretary General Luis Almagro and Venezuelan civil society to discuss the humanitarian crisis. And Maduro’s government hosted bondholders in Caracas for a last-minute meeting to renegotiate the terms of roughly $60 billion in external bonded debt owed by the government and PDVSA. However, according to investors present, no details of restructuring were discussed during the meeting, which lasted just 30 minutes.
Ahead of the November 13 meeting with investors, AQ spoke to Russ Dallen, an international lawyer, managing partner at Caracas Capital Markets investment bank, and owner of the Latin American Herald Tribune, about his expectations for the meeting and the ramifications of a default.
AQ: Where does Venezuela’s debt situation stand?
Everything seems to be confused. On November 10, a grace period expired on a bond payment by the state electricity utility Electricidad de Caracas, and there was confusion over whether that payment was made. So the markets have been confused. I suppose we’re entering a similar situation because they haven’t said whether they’ve paid these three bond payments that came due over the weekend. But because Saturday and Sunday are not business days they essentially have until the end of Monday to pay them off.
AQ: What is your take on the government’s strategy heading into Monday’s meeting?
It’s almost like things have been set up to fail, given the lack of information about the meeting. Additionally, the government tapped Vice President Tareck El Aissami to lead the negotiation, with the finance minister and PDVSA CFO Simon Zerpa as the leading official present. Both have been sanctioned by the U.S. Treasury, which has created confusion for bondholders who have not been sure if they can attend. On Saturday, the U.S. Department of Treasury issued an explainer saying that bondholders could participate in the negotiations on licensed bonds so long as sanctioned individuals – Zerpa and El Aissami – are not involved.
AQ: How could Maduro gain if the talks break down?
There’s been a perception that the Maduro government was going to have the talks fail and blame a default on U.S. sanctions, which currently prevent Venezuela from making new debt. But the Treasury Department in recent days has said that the U.S. would consider licensing new bonds if they are approved by the Venezuelan National Assembly, which Maduro has been thwarting at every opportunity. This gives the opposition something to go to the government with and say, “If you recognize the National Assembly and treat us with respect we might be willing to do this.” Interestingly, it’s turned the sanctions into a great negotiating tactic. It’s a great flanking maneuver from the U.S. government.
AQ: The opposition has criticized the Maduro government for prioritizing debt payments when there’s a shortage of food and medicine. If the government does default, would that realistically help it provide these necessities?
It will in some ways. (OAS Secretary General) Luis Almagro was asked the same question in a hearing before the Senate Foreign Relations Committee, and his answer was that the government was not giving those things to the people anyway. Any money they get they’re not spending on the people.
AQ: If Venezuela defaults on the interest payments it owes, what are the short-term implications? Why should people who aren’t bondholders care?
After a default, the real ramifications would be a drop in oil production and a drop in the cost of Venezuelan oil. Venezuela is dependent on foreign money to develop its oil resources. If it becomes incapable of accessing, exploring and producing this resource, the world itself will be hampered because oil prices will go up and development will become more expensive.
Once you have defaulted, creditors become aggressive in their tactics to collect. Argentina set the modern-day example of what can happen. You had people following then-President Cristina Fernández de Kirchner around looking to seize her jet. An Argentine naval ship was held in a port in Ghana for two months after a hedge fund demanded a payment of $20 million. In this case, you could see PDVSA ships, or ships carrying Venezuelan oil, stopped on the high seas. You’re going to see the prices that people pay for Venezuelan oil go down because there’s the risk that their ship could be stuck in a port. Anyone that buys Venezuelan oil is going to demand concessions because of the danger of legal problems. This could further exacerbate Venezuela’s economic crisis.