Venezuela Debt Restructuring
Richard Francis Director, Latin America Sovereign Ratings February 2018
Agenda Venezuela in Default Precedents Economic Outlook Oil Production External Position Central Government & PDVSA Debt Structure Other Debt Obligations Elections International Sanctions
2
Venezuela in Default On November 14, 2017 Fitch downgraded Long Term Issuer Default Rating
RD
(RD). This action was taken after the
Short Term Issuer Default Rating
C
government didn’t make payments within the
Local Currency Long Term Issuer Default Rating
CC
30-day grace period of bonds maturing in 2019
Local Currency Short Term Issuer Default Rating
C
and 2024.
Country Ceiling
CC
Venezuela LTFC IDR to Restricted Default
Venezuela Rating History BB BBB+ B BCCC CC C RD
Source: Fitch
3
Precedents Country
Default
Months to Leave Default Status
Argentina
Dec-2001
105
Credible government that can secure future financing sources
Argentina
Jul-2014
22
Local financing flexibility
Government’s sources to pay off debt
Support from third parties (e.g. EU support to Greece)
International sanctions that limit the government foreign financing
IMF conditionality often includes credible negotiations with bondholders
Pari-passu clause=> one bond in default = all bonds in default
Ecuador
Dec-2008
9
Moldova
Jun-2002
7
Dominican Republic
May-2005
Ukraine
Oct-2015
Elements to consider during restructuring negotiations:
3 1
Uruguay
May-2003
1
Jamaica
Feb-2013
0.2
Greece
Mar-2012
0.1 4
Bond Coupons Since Sovereign Default Bond
Due date
Ven '19/'24
13-Oct-2017
End of grace period 13-Nov-17
PDV '27
13-Oct-2017
Ven '25/'26
Coupon (USDm) Timely payment
Paid after grace period
199.7
no
13-Nov-17
80.6
no
20-Oct-2017
20-Nov-17
237.4
no
Partial on 25
PDV '20
27-Oct-2017
27-Nov-17
143.1
no
Partial
PDV '22N
28-Oct-2017
27-Nov-17
90
no
Ven '23/28
7-Nov-2017
7-Dec-17
182.5
no
PDV '26
15-Nov-2017
15-Dec-17
135
no
PDV '24
16-Nov-2017
18-Dec-17
150
no
PDV '21
17-Nov-2017
18-Dec-17
107.7
no
PDV '35
17-Nov-2017
18-Dec-17
146.3
no
Ven '18
2-Dec-2017
2-Jan-18
35
no
Ven '20
8-Dec-2017
8-Jan-18
45
no
Ven '36
29-Dec-2017
29-Jan-18
162.5
no
Ven '34
16-Jan-2018
15-Feb-18
70
no
Total
1,785
5
Upcoming Payments Bond
Due date
End of grace period
Ven '31
5-Feb-2018
5-Mar-2018
251
Ven '18
15-Feb-2018
15-Mar-2018
72
PDV '22
17-Feb-2018
17-Mar-2018
191
Ven '22
23-Feb-2018
23-Mar-2018
191
Ven '27
15-Mar-2018
15-Apr-2018
185
Ven '38
31-Mar-2018
31-Apr-2018
44
PDV '27
12-Apr-2018
12-May-2018
81
PDV '37
12-Apr-2018
12-May-2018
41
Ven '19
13-Apr-2018
13-May-2018
97
Ven '24
13-Apr-2018
13-May-2018
103
Ven '25
21-Apr-2018
21-May-2018
61
Ven '26
21-Apr-2018
21-May-2018
176
PDV '20
27-Apr-2018
27-May-2018
107
PDV '22
28-Apr-2018
28-May-2018
90
Coupon (USDm) Timely payment
Total VZ 2018
6081
Total PDVSA 2018
3753
Paid after grace period
6
Economic Outlook Venezuela Compared to ‘B’ Median, 2017 Real GDP Growth (5yr average)
Venezuela
B Med
-8.1
3.4
Inflation (5yr average)
435.6
5.3
GDP per Capita (USD)
1,776
3,500
M2/ Broad Money (% GDP)
4.4
43.8
Governance (average)
8.2
34.5
General Government Debt (% GDP)
155.6
62.4
General Government Debt in FC (% GDP)
155.4
37.7
General Government Balance (% GDP)
3.7
-4.5
CAB+ Net FDI (% GDP)
-3.4
-1.4
Reserve Coverage (months of CXP)
3.8
3.7
247.3
54.5
Net External Debt (% GDP)
Imports per capita (LHS) (USD)
Worse than ‘B’ Median
Source: Fitch, National Authorities, Most are estimates with little official data
(USD)
2200
110
1760
88
1320
66
880
44
440
22
0 Better than ‘B’ Median
Vene Basket Price (RHS)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* 2017*
Indicator
Import Compression
0
Source: IFS, BCV & Fitch *Estimate
7
Oil Production Oil Production in Venezuela Rosneft China Cash sale
Petrocaribe Domestic consumption Oil production
(million barrels/day) 2,500.0
2,000.0
1,500.0
Oil price recovery has been offset by lower production FX constraints have led to under-investment and arrears to suppliers and operators Significant oil production recovery is challenging in the near term, as increases in production in the Orinoco belt would have to outpace the decline in the mature Western oil fields Roughly 20% of total oil production goes to domestic consumption, where prices are the lowest in the world (about 1 cent a litre) New production is coming from the Orinoco belt that produces heavy crude that requires significant blending from lighter crudes
1,000.0
Oil Prices 500.0 USD/barrel Source: 0.0 OPEC, Fitch
Avg. 20122016
2016
2017
2018f
2019f
83.7
45.1
54.9
52.5
55.0
Source: Fitch GEO
8
External Position External Position Other sectors debt Banks debt Monetary authorities debt General government debt Other sector foreign assets Deposit money banks' foreign assets
(USDbn) 300,000 250,000 200,000 150,000 100,000 50,000 0
Trade Balance
-50,000
Non-oil imports Oil exports
Oil imports Trade balance
Non-oil exports
(USDbn)
-100,000 -150,000
2019f
2018f
2016
2015
2014
2013
201 1
2017e
Source: Fitch
2012
2010
-200,000
Source: Fitch
9
Central Government & PDVSA Debt Structure CG + PDVSA External Debt
PDVSA Debt (USDm) 40,000 35,000 8,993 30,000
Other
25,000
Bonds
20,000 15,000
27,275
10,000 5,000 Source: ONCP, Fitch, PDVSA 10
Other Debt Obligations -
Central bank debt: USD7.9 bn
-
Bilateral Loans with Russia/China: USD18.6 bn
-
Arrears with suppliers: Pharmaceutical companies, Airlines, ect: USD10 bn
-
Elecar: USD650 mn
-
International Arbitration Claims: Over 40 claims, some settled/dismissed.
-
Gold Reserve: USD 770mn, settlement reached.
-
Crystallex: USD 1.4bn in final stages.
-
ConocoPhilips: ICSID has ruled that Venezuela is liable but it has not determined the amount.
-
ExxonMobil: ICSID initially awarded USD1.6bn but a review panel later annulled USD1.4 bn. US appeals court effectively threw out the case.
11
Elections Constituent Assembly on July 30, 2017 •
Vote came after four months of intense protests and repression. Opposition boycotted the vote.
•
Assembly has authority to change constitution as well as dismiss existing officials and institutions.
•
Vote led to increased US sanctions.
Local and Regional elections on October 15, 2017 •
Sweeping victory for ruling socialist part (PSUV), contradicting most polls. PSUV won 18 out of 23 governorships.
•
Opposition, participated reluctantly, refused to recognize results.
•
Worsened disputes within a divided opposition. Increased cohesion for the regime.
Presidential Elections scheduled April 22, 2018 •
Talks between opposition and government stalled; Mexico and Chile withdrawn as guarantors of talks with the opposition
•
Opposition participation limited. MUD is not allowed to run with a single candidate. Primero Justicia not allowed to have candidate. Enrique Capriles not allowed to run. Leopoldo Lopez in house arrest.
•
Likelihood for increased US sanctions both pre-and-post election. Foreign governments unlikely to recognize results. 12
International Sanctions -
First in series of US sanctions began on March 9, 2015 -- Several key figures in the government were sanctioned. Property and interests in US are blocked and US based individuals and companies were blocked from doing business with the individuals named in the sanctions.
-
Since March 2015, the names on the list have been widened to include new individuals such as the Supreme Court of Justice, President, VP and CFO of PDVSA, and Constituent Assembly.
-
On Aug. 24, 2017, sanctions widened to prohibit transactions by a US person or within the US to new debt of PDVSA or the government, existing bonds issued by the government or dividend payments or profit distribution to government or government owned entity.
-
Both EU and Canada put in place sanctions on certain individuals within Venezuelan government as well.
-
POSSIBLE NEXT STEPS
-
US sanctions could be increased ahead of Presidential vote to preclude sale of light crude to Venezuela, needed as mix for Venezuelan heavy crude. Post-election could be ratcheted up to prohibit import of Venezuelan crude to the US.
-
IMPACT:
-
Sanctions placed severe strain on government’s ability to issue new debt to finance itself or restructure existing debt. Also, caused logistical issues related to correspondent banks as well as payment transfers and trade finance. Further sanctions could significantly increase costs of oil shipments and further reduce margins, causing financial strain.
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