Russia Says Venezuela Accepts $3 Billion Restructuring Terms

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RVX's Zucaro on Venezuela's Debt Overhaul Plan

Venezuela and Russia have agreed on terms for restructuring about $3 billion of the Latin American country’s debt and the deal will come soon, Finance Minister Anton Siluanov said in Moscow.

“The Venezuelans have confirmed the terms we’d agreed on, and that’s why the process will move into the concluding phase,” Siluanov told reporters on Wednesday.

Anton Siluanov

Photographer: Andrey Rudakov/Bloomberg

Russia had offered to reschedule debt payments over two stages, with payments on most of the state loan to be delayed to the second phase, Siluanov said late last month. He declined to give further details of each stage or the amount of money involved, saying calculation of the terms is for negotiation with Venezuela.

The deal would give Venezuela some breathing space as it faces the much more difficult task of restructuring about $52 billion of bonds owed to private creditors by the government and state entities. By announcing a plan for an overhaul last week, President Nicolas Maduro is acknowledging that the heavy debt load for the oil exporting nation has become unsustainable after a drop in crude output and prices. The nation has also blamed U.S. sanctions for making it impossible to find new financing.

Venezuela’s Information and Communications Ministry didn’t immediately respond to a request for comment.

‘Far Easier’

Finding a solution with Russia will be “far easier” than negotiating with private bond holders, according to Richard Segal, a London-based credit analyst at Manulife Asset Management.

“Being oil specialists, it is easier for the negotiators to see eye to eye, and the bilateral political relationship has been comparatively cordial for quite a while,” Segal said. “It is easier for Russia to accept oil or cash, and Russian oil producers have significant long-term partnership interests across industry spectrums. Investors have to mark their positions to market, whereas bilaterals don’t and the terms don’t have to be publicized.”

The government in Caracas failed to make payments after a deal last year to restructure 2011 debt, which opened a 53.9 billion-ruble ($909 million) gap in Russia’s expected budget revenue in 2017. Russia’s state-run oil company Rosneft PJSC has also provided several billion dollars in advance payments for Venezuelan crude supplies to help prop up Maduro’s struggling regime. Analysts including Renaissance Capital see rising risks for Rosneft being repaid in case Venezuela defaults.

This isn’t the first time that Russia finds itself tied up in another
nation’s sovereign debt restructuring. In 2015, a $3 billion Eurobond bought from Ukraine to help prop up the regime there before its ouster was included in restructuring negotiations. Russia refused to negotiate and later took Ukraine to court to demand repayment. The case is still ongoing.

Better Relationship

“This is quite different to Ukraine debt because Moscow has good political relations with Venezuela,” said Chris Weafer, a partner at Macro Advisory in Moscow. “It will be keen to cut a deal and will not consider litigation or any other sort of pressure on Venezuela to pay. Moscow will be happy to do them a favor and wait.”

Venezuela’s debts to Russia are governed by the Paris Club, a group of creditors that handles loans to governments, putting them in a separate category from the bonds the Latin American country is seeking to renegotiate with private creditors.

“Russian loans are senior to bonds and I’m sure they have good collateralization,” said Lutz Roehmeyer, who helps oversee about $14 billion at Landesbank Berlin Investment GmbH. “So there’s less to discuss for Venezuela if they still want to do oil business with Russia in the future.”

— With assistance by Natasha Doff, Anna Andrianova, and Ben Bartenstein

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