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Bondholder representatives gathering in Caracas

13 Nov 2017, 2.50 pm GMT

Bondholder representatives gathering in Caracas

Caracas, 13 November (Argus) — Venezuela's presidential debt restructuring commission is expected to meet representatives for almost 200 bondholders today in Caracas with the aim of launching formal negotiations to restructure about $70bn in sovereign and state-owned PdV bonds.

Expectations of a breakthrough on the Opec country's growing arrears are low.

"Quite a number of representatives are going to Caracas, but it will be mostly lawyers talking to lawyers," a senior sovereign debt expert told Argus.

"No one expects much to come out of this, because the Venezuelans have no economic reform plan to persuade creditors they will be in a better position to pay their debt in the future."

The meeting with bondholders will be held at 2pm local time in the White Palace, a military installation housing the presidential honor guard located next to Miraflores presidential palace in downtown Caracas.

Venezuelan executive vice president and debt commission head Tareck El Aissami is unlikely to attend the meeting with bondholders because he is subject to US Treasury sanctions for alleged drug trafficking.

Another conspicuous absentee is likely to be finance minister and PdV chief financial executive Simon Zerpa, who is also subject to US sanctions, for alleged money laundering.

President Nicolas Maduro, subject to US and Canadian sanctions for human rights violations, will not be at the meeting either, a presidential palace official said.

But nothing prevents them from showing up unexpectedly.

"If Maduro, El Aissami or Zerpa walk into the room where bondholder representatives are present, they will have to leave immediately or risk US federal prosecution for violating OFAC sanctions," a bond trader told Argus, referring to the US Office of Foreign Assets Control (OFAC).

The US Treasury issued guidelines on 11 November clarifying that bondholders can participate in negotiations on licensed bonds "as long as there is no involvement" of specially designated nationals subject to US individually targeted sanctions.

Since August Venezuela is also the target of US financial sanctions, which effectively prevent the government and PdV from issuing new debt or equity in US financial markets.

But the new US Treasury guidelines also stipulate that the US government would consider licensing new bonds provided that the issuance is "approved by the democratically elected Venezuelan national assembly."

The opposition-controlled assembly was effectively disbanded by the government earlier this year, and replaced by a government-controlled national constituent assembly established through 30 July elections widely seen abroad as illegitimate.

The US Treasury guidance appears aimed at flanking a possible Maduro government strategy of blaming US sanctions if the debt talks run aground.

Venezuelan officials expected at today's meeting could include energy minister Eulogio Del Pino, PdV chief executive Nelson Martinez, planning minister Ricardo Menendez, sectorial economy vice president Wilmar Castro and chief government legal counsel Reinaldo Munoz, in addition to recently hired external counsel.

None of the Venezuelan debt restructuring commission's members, including Zerpa, has substantive financial experience. But Del Pino and Martinez may jointly wield the gavel given that PdV generates over 95pc of the country's annual hard currency revenues, the presidential palace official said.

In related international developments today, EU foreign ministers voted to ban the sale of arms and surveillance equipment and technology to Venezuela, but postponed a decision on possible individual sanctions to a later date.

Separately, the determinations committee of the International Swaps and Derivatives Association is meeting in New York at noon today to determine whether PdV's failure to pay $1.1bn of principal on a maturing PdV 2017 bond due on 2 November constitutes a "failure to pay" or default event.

In New York, the UN Security Council has scheduled a 3pm meeting co-organized by the US government and Italy to hear briefings on Venezuela's political crisis from OAS secretary general Luis Almagro, UN high commissioner for human rights Zeid Ra'as al Hussein and Caritas International UN delegate Joseph Donnelly.

And bond markets are attuned to another debt deadline. Venezuela has until the expiration of a 30-day grace period at 11:59pm eastern time tonight to pay over $280mn of combined late interest due on a PdV 2027 bond, a sovereign 2019 bond and a sovereign 2024 bond.

Maduro pledged yesterday that Venezuela will continue honoring its bond principal and interest obligations as it seeks to win bondholder backing for a voluntary debt restructuring process.

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