Venezuela Debt Restructuring

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.

13

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