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Venezuela Debt Crisis Nears New Low as Riskiest Bond Matures

Updated on
  • Elecar owes bondholders a $650 million principal payment
  • So far, Venezuela has only missed interest obligations

The Venezuelan debt crisis could be on the verge of a new milestone as a $650 million bond matures Tuesday with little hope it’ll get paid.

The notes from the state-run electric utility were always considered among the country’s riskiest securities because the downsides to a default are relatively minor. They don’t contain any cross-default rules that would affect sovereign debt or notes from the state oil company, and the utility doesn’t have any overseas assets that investors could try to seize.

A missed principal payment would mark a new low for Venezuelan investors who are already confronting $2 billion in late interest but haven’t yet seen the government skip out on paying back maturing notes. President Nicolas Maduro said in November that he wanted to restructure the nation’s obligations amid a deep recession, currency crisis and tumbling oil production, but international sanctions have prevented any progress on that front.

“I just cannot see them scraping that kind of capital to be paid back at this point,” said Ray Zucaro, the chief investment officer at RVX Asset Management, which holds Venezuelan debt.

Electricidad de Caracas’s notes trade at about 33 cents on the dollar, signaling that investors view them as the riskiest debt maturing this year in the world’s riskiest nation. Fitch Ratings puts them one notch above default. Only some holders received an interest payment due in October and the trustee declared a default. Elecar said the payment was delayed due to “operational changes,” which Finance Minister Simon Zerpa later said were resolved.

If the bond does get paid, investors who bought the notes now would make a quick 150 percent profit. It could also spur a rally in other Venezuelan debt. The last glimmer of hope money managers can cling to is unsubstantiated speculation that a group of wealthy Venezuelans with government connections holds a large chunk of the debt, and Maduro’s administration wouldn’t want to give them reason to be angry.

Officials at Elecar and Venezuela’s Finance Ministry declined to comment on the payment or who holds the debt.

Here’s what investors and analysts had to say about the Elecar payment:

Shamaila Khan, director of emerging markets at AllianceBernstein

  • “From an operational perspective, they have had a hard time making coupon payments. So it is hard to imagine they can make the principal payment”

Siobhan Morden, head of Latin America fixed-income strategy at Nomura

  • “I don’t think they have money to pay, but Venezuela always surprises”
  • Expects default due to lack of money, payment chain issues and relatively minor consequences

Francisco Ghersi, managing director at Knossos Asset Management

  • “I think they are going to default -- 95% chance”
  • “There’s no incentive to pay. They’re in default right now, so why they are going to pay?”
(Updates bond price in fifth paragraph.)
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