AGORA

Wednesday, October 25, 2017

Missed debt payments revive specter of PdV default

23 Oct 2017, 3.59 pm GMT
Caracas, 23 October (Argus) — Venezuela has missed interest payments totaling $590mn this month on seven bonds totaling a combined $14.75bn of principal as of 21 October, heightening creditor worries of an imminent default if state-owned oil company PdV misses a $984mn interest payment due on 27 October.
"Creditors are on tenterhooks and praying, but still hopeful that PdV won't miss Friday's $984mn payment," Miami-based bond trader Russ Dallen told Argus.
"The seven interest payments already missed this month have a 30-day grace period before they're declared in default, which gives Venezuela some time to catch up before they're actually in default," Dallen said. "It's possible that the government is saving its pennies to make the big bond payments due on 27 October and 2 November."
He noted that the looming $984mn interest payment on the $3.368bn PdV 2020 8.5pc bond does not have a 30-day grace period. "If PdV misses this Friday's payment the impact on the company's operations will be significant and immediate," Dallen added.
Among the immediate effects of a PdV default would be a shutdown of the crude and refined product imports on which the Opec country increasingly depends. Exports and oil tankers would be at risk of seizure.
But Venezuela has proved adept at averting default on several previous occasions in recent years, mainly by selling or mortgaging assets, or using its US downstream subsidiary Citgo to replenish funds.
PdV and the government have more than $3.79bn in combined bond interest maturities due in fourth quarter 2017, including over $1.66bn this month, over $1.89bn in November and $242mn in December.
PdV's fourth quarter maturities total over $2.9bn or over 76pc of the total due before end-2017, of which $984mn are due on 27 October, $90mn on 28 October and $1.169bn on 2 November.
Venezuela has never defaulted on its bond obligations and plans to make all payments due this month without any difficulty, a central bank official told Argus.
But with central bank hard currency reserves at just $9.86bn currently, including about $500mn in cash, it is not clear where PdV and the government will secure the cash needed to pay combined fourth quarter 2017 bond maturities equivalent to over 38pc of the bank's current reserves position.
PdV was two weeks late paying about $229mn of bond interest in September – a delay the company blamed on US financial sanctions.
PdV, the energy ministry and finance ministry all declined to comment on the debt arrears.
But a PdV mid-level finance manager again blamed the company's escalating difficulties on US financial sanctions announced in August.
The US sanctions limit Venezuela's ability to raise revenue through the US financial system, with some exceptions, including commercial trade financing.

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