Venezuela Declared in ‘Selective Default’

November 14, 2017


On 13 November, international credit ratings agency Standard & Poor’s (S&P) revised down its rating of Venezuela’s sovereign debt to ‘SD/D’, denoting that the issuer had fallen into a ‘selective default/default’ of its debts.

S&P is the first major credit agency to consider that Venezuela has defaulted on its debt, which could result in the country now be shunned by international financial markets; and which could lead its creditors to demand the immediate repayment of Venezuela’s debt. This in turn could tip Venezuela into a major default crisis should the cash-strapped government led by President Nicolás Maduro fail to reach a debt settlement deal with all its creditors.

  • That S&P’s decision came after the Maduro government yesterday hosted a first meeting with the holders of Venezuelan bonds to discuss a debt restructuring and refinancing plan, and it suggests that the markets do not believe that this process can be successful amid the deep political and economic crisis that Venezuela now finds itself in.
  • In a statement S&P said that it had decided to revise down Venezuela’s long-term foreign currency sovereign credit rating after the country failed to make a US$200m in coupon payments for its global bonds maturing in 2019 and 2024 before the expiry of the 30-day grace period to do so. Earlier this month President Maduro called for the renegotiation of the Venezuela’s entire foreign debt after the state-owned oil firm Pdvsa missed a US$1.12bn payment on its bonds.
  • Maduro said that Pdvsa would make this payment but said that Venezuela would not process any other payments until it could reach a restructuring and refinancing deal with its creditors, and he called for these to meet with a special presidential commission appointed by him to discuss the matter in Venezuela’s capital, Caracas, yesterday.
  • Maduro was adamant that his government was not planning to default on its debt, but he insisted that the international economic sanctions imposed on his government over the perceived undemocratic actions taken by his government against political dissidents were affecting its access to US dollars and therefore its ability to pay creditors. Consequently, Maduro said that reaching a debt restructuring deal was necessary in order to avoid Venezuela being unable to honour its debts.
  • The fact that US sanctions prohibit US nationals from having any dealings with designated Maduro government officials produced serious concerns over whether US bondholders (who hold 75% of Venezuela’s total debt) would be able to attend the meeting in Caracas. Nonetheless, the Maduro government announced yesterday that it held a “successful” first meeting with its creditors at the Miraflores presidential palace yesterday. The official statement said that holders of 91% of Venezuela’s debt, including creditors from the US, the United Kingdom, and Japan, were present at the meeting.
  • However, the Maduro government statement did not provide any details of what was discussed or if creditors had agreed to any restructuring and refinancing plan. Meanwhile, the local press reported that some of the creditors that attended the meeting in Caracas yesterday anonymously expressed concerns that the Maduro government officials did not present any concrete restructuring or refinancing plan and limited themselves to railing against the US sanctions and explaining how these were limiting Venezuela’s ability to pay its creditors.

With Venezuela reportedly needing to successfully renegotiate a total foreign debt bill estimated to be of US$150bn by Venezuela’s national assembly, with US$60bn in foreign denominated bonds alone, the Maduro government is under intense pressure to strike a deal with its creditors and avoid a full default that would only exacerbate the country’s already deep economic woes. The prospects that the Maduro administration can achieve this in the current circumstances, and after the European Council yesterday confirmed the imposition of new sanctions on it, look dim. Pointedly, the S&P note explaining its decision to downgrade Venezuela’s rating says that “in our opinion there [now] is a one-in-two chance that Venezuela could default again within the next three months”.  

This feature was provided to EMIA by our editorial partner LatinNews.

Tags: credit rating, default, latam, maduro, s&p, standard & poors, venezuela
Posted in LatAm, Macro Economics, Macro Economics