Venezuela creditors skeptical despite pledges on Caracas meeting

CARACAS/NEW YORK (Reuters) - Venezuela has promised investors that government officials under sanction by the United States will not participate in debt talks next week, three market sources told Reuters on Thursday, but several creditors said they were still unlikely to attend.

The corporate logo of the state oil company PDVSA is seen at a gas station in Caracas, Venezuela, August 30, 2017. REUTERS/Andres Martinez Casares

President Nicolas Maduro has urged bondholders to meet for debt restructuring talks in Caracas with officials from the cash-strapped OPEC nation, which is struggling under a failing socialist economic system and Washington sanctions that block it from refinancing its debt.

Many investors have said they would be reluctant to take part in the Monday talks, as Venezuela’s two chief debt negotiators have been sanctioned by the U.S. government, which has warned investors of stiff penalties if they break the rules.

The Venezuelan government had promised that sanctioned officials would not attend the meeting, said a local finance industry source with knowledge of the preparations. In New York, two other sources knowledgeable about the Venezuelan debt situation said they had heard the same pledge.

Venezuela’s Information Ministry did not respond to a request for comment.

Creditors still seemed skeptical. As well as the sanctions, they have cited concerns about security in Caracas and a lack of clarity on the proposals.

“We are not going,” said Kaan Nazli, senior economist for emerging debt at investment manager Neuberger Berman. “It is unclear what the proposal will be ... there are so many obstacles that you don’t see in any other restructuring.”

A fund manager at a U.S.-based emerging markets advisory boutique said: “I personally do not know anyone who would entertain this ‘invitation.’ I can tell you right now that there’s no way my wife (and mom) would let me go!”

Maduro has invited creditors to discuss the restructuring of some $60 billion of bonds, but also vowed to continue making debt payments. Investors say they would have little reason to participate in renegotiation talks if payments continue, and that such talks generally begin after a default has taken place.

U.S.-based creditors are not prohibited from attending meetings, but are barred from dealings with sanctioned officials.

U.S. President Donald Trump’s administration has imposed several rounds of sanctions this year, accusing Maduro’s government of undermining democracy and violating human rights. Vice President Tareck El Aissami is under sanction for alleged drug trafficking, while Economy Minister Simon Zerpa has been sanctioned for corruption.


The U.S. Treasury’s Office of Foreign Assets Control, or OFAC, said it would consider allowing U.S. citizens to acquire newly issued Venezuelan debt if such an issuance was approved by the opposition-run National Assembly.

Current sanctions prohibit U.S. banks or financial institutions from buying newly issued Venezuelan bonds, which has effectively blocked refinancing.

On Thursday, the U.S. Treasury added 10 officials of modest influence to its list of Venezuelans under sanction, including several members of the National Elections Council.

The new sanctions do not show any evident link to the debt talks. They appear to have come in response to October elections for state governors that broadly favored the ruling Socialist Party amid opposition complaints of fraud and voter intimidation.

Creditors have also asked finance industry association ISDA to determine if Venezuelan state oil company PDVSA [PDVSA.UL] is in default because of a delayed bond payment.

The International Swaps and Derivatives Association (ISDA) website showed that PDVSA was on its agenda for Friday at 11 a.m. EST (1600 GMT).

The full payment for PDVSA’s 2017N bond of $1.169 billion, which includes $1.121 billion in principal and $47 million in interest, was due on Nov. 2.

In one sign of progress, settlement agent DTC has told creditors that it has received the principal payment on bond, three market sources told Reuters. DTC declined to comment.

If ISDA determines that a “credit event” has taken place, that could allow debtholders to collect on derivatives known as credit default swaps, a form of insurance against default.

Since October, Venezuela and PDVSA have been skipping interest payments, invoking a 30-day grace period in an apparent effort to ease a cash crunch that has left the country desperately short of basic goods such as food and medicines.

Maduro said last week that the bond would be paid in full. He says Venezuela is victim of an “economic war” led by his political adversaries and fueled by Washington’s sanctions.

An ISDA spokeswoman said Friday’s meeting may not be conclusive. “It is always possible that they will need more time to deliberate,” said the spokeswoman, who asked not to be named, in an email to Reuters.

PDVSA did not respond to an email seeking comment.

Additional reporting by Umesh Desai in Hong Kong, Lesley Wroughton in Washington and Karin Strohecker in London; Writing by Brian Ellsworth,; Editing by Leslie Adler and Peter Cooney