Mar 30, 2023
Venezuela Offers to Push Back Deadline on $60 Billion Debt Pile
(Bloomberg) -- Venezuela will push back a legal deadline on $60 billion of defaulted debt in a bid by President Nicolas Maduro to prevent creditors from filing a wave of lawsuits while he attempts to regain recognition from the US.
Maduro’s administration announced Thursday it suspended the statute of limitations on bonds issued by the government and state oil company, PDVSA, according to statements published on government websites. The suspension will be in effect for five years or until the US government lifts economic sanctions that prevent a debt restructuring.
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The statute is set to expire on some bonds in October — six years after Caracas stopped payments on the debt — meaning creditors face losing their right to pursue repayment in court.
Bondholders now have to decide whether to accept Maduro’s offer or file suit to protect their claims. The offer by Caracas, known as a tolling announcement, would give the government and creditors more time to work on a potential restructuring. But because Maduro’s government is not recognized by the US, creditors say other guarantees are needed.
The Venezuela Creditor Committee, a group of long-term investors holding in excess of $10 billion of the debt, said in a statement that it welcomed the announcement and urged the opposition-led National Assembly to endorse it and the US government to “recognize its validity.”
“A tolling is necessary to avoid holders and asset managers of Venezuela, PDVSA and Elecar bonds being forced to commence litigation in New York courts,” the committee said. The funds spent on litigation could be put to better use given Venezuela’s challenges, the creditors said.
“Make no mistake about it, this is an important first step,” said Richard Cooper, an attorney at Cleary Gottlieb Steen & Hamilton LLP who represents the committee.
The Biden administration doesn’t recognize anyone as Venezuela’s legitimate president, leaving a diplomatic vacuum that complicates legal matters.
- Read more: Venezuela Power Vacuum in US Raises Questions for Creditors
Tolling measures are a seldom-used tactic applied when countries have experienced long default periods, such as Peru in the 1990s. It’s also usually done in the context of a broader debt restructuring.
The announcement marks a renewed attempt by Maduro to work with creditors as he seeks to regain international legitimacy and convince foreign governments to remove sanctions against his country. Washington has quietly softened its stance toward Maduro over the last year by lifting some restrictions on the oil industry and sending envoys to Caracas for direct talks that led to prisoner swaps.
Maduro, who took over from late President Hugo Chavez a decade ago, has repeatedly said the government is open to a restructuring, without providing details. A previous tolling agreement offered by his administration in 2020 failed to gain traction.
Venezuela defaulted on its debt in 2017 and has been unable to engage with bondholders as economic sanctions prevent US investors from dealing with the Maduro government. Billions of dollars in interest have accrued on the bonds, which trade around 11 cents for the sovereign and less than 5 cents for bonds issued by the state oil company, Petroleos de Venezuela SA.
Even if the opposition endorses the tolling announcement, creditors still may need to seek a declaration from the court indicating that the endorsement is effective given the legal ambiguity over the issue, Cooper said. The removal of opposition-leader Juan Guaido from his role as the US-recognized interim president in December has left a void.
“We need clarity,” said Claudio Zampa, founder of Switzerland-based Mangart Capital Management Ltd. and member of the Venezuela Creditor Committee. “The big issue at the moment is that we don’t have a formal decision by the US government to tell us as bondholders who is the legal representative of Venezuela.”
(Adds statement from creditors starting in fifth paragraph)
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