Venezuela’s opposition plans to treat equally creditors ensnared in the country’s $150bn web of defaulted debt if President Nicolás Maduro is removed — after weeding out inflated, fraudulent, or corrupt claims.
In a new policy paper, advisers to US-backed opposition leader Juan Guaidó sketch out how his administration would go about restructuring Venezuela’s huge and varied stock of debt, which includes unpaid supplier invoices, expropriation claims and defaulted bonds, among other instruments.
Given the complexity of the claims, the opposition government plans to hold all its foreign creditors to the same terms no matter the kind of debt held, which public entity issued it, and whether or not the creditor had previously gone to a courthouse and received a judgment.
“What the government is offering is an orderly process in which we can recognise the claims on the government and restructure them so they are in line with the country’s capacity to pay,” Ricardo Hausmann, an economic adviser to the opposition, said.
Mr Guaidó is setting out plans to deal with the stock of debt because he considers himself to be the legitimate interim president of Venezuela, arguing that Mr Maduro has usurped the title on the basis of bogus elections. He says that under the constitution, he has the right to assume the presidency because he is the head of the National Assembly, Venezuela’s democratically elected Congress.
With the backing of the US and most major countries in Latin America, he has been trying to unseat Mr Maduro since the start of this year, without success. Mr Maduro retains the control of the armed forces and controls most state institutions.
The policy paper, to be published on Wednesday, indicates that Mr Guaidó’s team would make two exceptions to the equal-treatment principle. The country’s bilateral debts with Russia and China would be negotiated separately, as would commercial claims secured by property of the Venezuelan state or its public sector entities.
That latter exception could eventually include holders of bonds issued by the state-run oil company PDVSA due in 2020, should the country miss payment on what is its last remaining bond not yet in default. The debt is backed by a majority stake in Citgo, the PDVSA-owned but Texas-based, energy business.
Beyond the 2020 bond, the beleaguered Latin American country has been in default on almost all of its debts since 2017. Current US sanctions prohibit trading in the securities of Venezuela and PDVSA, hampering any attempt at a restructuring and leaving bondholders and other creditors in the dark about their chances of eventually recouping their capital.
The opposition government said only claims that have been reconciled — meaning both parties have agreed to the sums in question — would be included in the restructuring. Those with pricing inconsistencies or pending arbitration claims would be investigated further. Claims connected to the alleged corruption of the Chávez or Maduro regimes will be excluded, according to the paper.
Many of the country’s creditors have already taken action to ensure they are well positioned, whenever restructuring negotiations do begin.
Some of the largest bondholders have joined forces under the wing of Cleary Gottlieb, the New York law firm, and restructuring expert Mark Walker to form a group holding more than $8bn of the country’s debt.
Other creditors, including hedge funds Contrarian Capital and Pharo Management, oil company ConocoPhillips and Canadian gold-miner Crystallex — which is backed by hedge fund Tenor Capital — have sued for repayment.
The opposition indicated in the paper that creditors with a court judgment would not be given preferential treatment.
“We cannot allow special treatment because if we do, we are creating an incentive for litigation,” José Ignacio Hernandez, Mr Guaidó’s attorney-general, said. “The message is, ‘please don’t sue Venezuela, because it will be a waste of money’.”
Mr Guaidó’s team is trying to avoid a repeat of Argentina’s tortuous debt restructuring, which saw holdout creditors walk away with more than $2bn, over a decade after the country defaulted on roughly $80bn of debt in 2001.
“The guiding principle behind this policy is to streamline the process as much as possible and to not get bogged down in the endless debates among creditors about who should be given preferential treatment,” said Lee Buchheit, veteran sovereign debt lawyer and adviser to the opposition government. “This could be the most complicated sovereign debt workout ever, but it doesn’t have to be.”
Additional reporting by Gideon Long in Bogotá