Venezuela payments could alter default grade; not outlook

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November 16, 2017 1:15 AM

If the crisis-stricken Venezuelan government manages to scrape together funds to make payments on its delinquent bonds, that would change the default designation but not the nations prospects, a top ratings agency told AFP on Wednesday.

Standard and Poor's declared Venezuela in "selective default" on Monday after the government of President Nicolas Maduro failed to make the already-late payments on two state bonds within the grace period.

But Venezuela announced Wednesday a restructuring deal with Russia on a small part of the estimated $150 billion in foreign debt held by the oil-rich but cash-poor nation, and says it has made payments on those bonds.

S&P managing director Joydeep Mukherji, who handles Latin American and Caribbean sovereign ratings, said even if those payments are confirmed, other debt service remains in doubt, including on four other bonds that already are overdue.

The agency also had declared state oil company PDVSA in selective default for non-payment on some of its obligations.

So even if the government manages to make a payment, it would "just go back to where you were before default. The larger picture hasn't changed just because you managed to scrape together cash to pay the bonds."

A default designation would have legal ramifications, allowing creditors to take action to demand payment, including potentially seizing valuable assets, but it would not change the situation on the ground.

"They've been in dire straits for quite a while," he said, and the ratings on the debt at "CC" is still "the closest you can get to the abyss without falling into default."

Like other observers of the deteriorating political situation in Venezuela, where the government has installed a constituent assembly to overrule the opposition-controlled Congress, and faces US economic and financial sanctions, Mukherji does not see prospects for the Maduro regime to change course.

"The economic policy has been the same for many, many years now... I have no reason to think, based on past performance, that a big change is coming now."

While lenders have seen many other defaults in Latin America, notably Argentina in 2002, Venezuela's situation is unique in many ways, not least that the government promised to pay its debt but also called for a creditors meeting Monday to discuss a restructuring, where it failed to present any plan.

Normally a country in crisis has declared default and approached creditors to negotiate a solution.

Venezuela, unlike other cases, has valuable resources in the United States that creditors could attempt to seize for repayment, notably its oil exports and Citgo with its three refineries, owned by PDVSA.

There also is huge uncertainty due to the US sanctions that prohibit American institutions and individuals from buying new Venezuelan bonds, which normally would be part of any restructuring.

But Venezuela's case is anything but normal, he said.

"There is more uncertainty than in previous debt restructurings."

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