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Venezuela defaults on £45bn debt after missing payments

 
 
 
 
 
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Venezuela has defaulted on its £45billion debt after missing interest payments sparking fears investors could seize the country’s oil as payment.

Caracas faced the first of what could be a cascade of defaults on its enormous foreign debt Tuesday as financial experts Standard and Poor’s declared the crisis-torn South American country in ‘selective default’.

S&P’s move came after Vice President Tareck El Aissami met with creditors in the Venezuelan capital Monday, but offered no way out of the impasse.

With no obvious means of paying the money back, attention has turned to the country’s state oil company.

President Nicolas Maduro has formed a commission to restructure Venezuela’s sovereign debt and that of state oil company PDVSA.

But participants in a first meeting in Caracas on Monday said officials had come up with no concrete proposals for restructuring the debt.

Geronimo Mansutti from the Rendivalores brokerage said: ‘They didn’t give any concrete details on their plans, on what they hope to get.’

About 70 percent of Venezuelan bondholders are North American, according to government figures.

S&P said there was ‘a one-in-two chance that Venezuela could default again within the next three months.’

‘We would very likely consider any Venezuelan restructuring to be a distressed debt exchange and equivalent to default given the highly constrained external liquidity,’ it said.

Vice-president El Aissami blamed US sanctions for delays to Venezuela’s debt repayments.

Restrictions include a ban on US entities buying any new Venezuela debt issues – usually a required step in any restructuring.

The US has designated vice president El Aissami himself a drug kingpin with whom US entities are barred from dealing.

In the meantime, China said its massive financing of Venezuela was ‘proceeding normally’, and Russia was expected to sign an agreement as early as Wednesday to restructure £2billion of Caracas’s debt, according to sources in Moscow familiar with the matter.

Beijing and Moscow have emerged as Venezuela’s most reliable sources of funding, with China owed £21billion and Russia £6billion.

S&P declared Venezuela in ‘selective default’ after it failed to make £150million in payments on two global bond issues by the end of a 30-day grace period on November 12.

The agency said: ‘We have lowered two issue ratings to ‘D’ (default), and we lowered the long-term foreign currency sovereign credit rating to ‘SD’ (selective default),’ adding that £320million in payments on four other bonds were also overdue, but still within the grace period.

Venezuela’s debt crunch comes as no surprise, as the government cuts back on imports to service its debt, leaving the population struggling with shortages of food and medicine.

Caracas has less than £8billion left in hard currency reserves, but must make £1billion in debt payments before year-end, and another £6billion next year.

But Maduro remains defiant, insisting on Sunday that his country would ‘never’ default and pointing to ongoing negotiations with China and Russia. Nevertheless, his options are very limited.

A default can be declared either by the major ratings agencies, big debt-holders or by the government itself.

Maduro is also under fire internationally for marginalizing the opposition, which controls the parliament, and stifling independent media.

The US called an informal meeting of the UN Security Council, where US Ambassador Nikki Haley slammed Venezuela as an ‘increasingly violent narco-state’ that poses a threat to world security.

Permanent council members Russia and China boycotted the meeting, as did non-permanent members Bolivia and Egypt.

Venezuela’s envoy to the UN, Rafael Ramirez, called the meeting ‘illegal’ and a ‘hostile’ act ‘of interference’ by the US.

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