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Venezuela said to mandate Rothschild as financial advisor
LATAM
Advisory Mandate
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Strategic Considerations: Venezuela, which has been in default on most of its international debt for more than six years, is working with Rothschild to start identifying those obligations, typically a first step toward a restructuring. Restructuring has been impossible since before the default because of a combination of US sanctions and Venezuela's insistence that sanctions be lifted. The US has been moving toward a less strict sanctions policy, but that could change tomorrow (18 April), when a general license allowing US persons to work with Venezuela's oil industry is set to expire. The US still doesn't recognize the government of President Nicolas Maduro, and the IMF is unlikely to reopen a relationship with Venezuela until the US recognizes Maduro's government.

  • IMF has gone almost 20 years without an Article IV review of Venezuela
  • Debt stock could be around USD 175bn

Venezuela, which stopped paying bonds in 2017, has mandated Rothschild as its financial advisor to work on mapping its sovereign debt, according to two sources and a person familiar.

Debt mapping and reconciliation is usually the first step toward restructuring.

The mandate at this point is for debt mapping, or identifying what obligations Venezuela has, rather than a full restructuring project, according to the first source and the person familiar. 

Rothschild and Venezuela’s information ministry didn’t respond to requests for comment.

Two advisors close to Venezuela said they were unaware of any mandate being signed. One warned that many advisors are “talking” and “claiming, but a signed or live contract is something different.” The same person said that some advisors would need a license from the US Treasury's Office of Foreign Assets Control (OFAC) to work with Venezuela.

Venezuela’s list of international obligations includes sovereign bonds, bilateral debt, and arbitration awards, according to published analyses. State-owned enterprises (SOEs) also have debts to vendors and joint-venture partners. In 2019, Richard Cooper of law firm Cleary Gottlieb and Mark Walker of advisory firm Guggenheim Securities said the sovereign had “more than USD 175bn in external financial obligations, virtually all of which are in default.” Venezuela and its SOEs have paid few of those in the five years since, while interest has accumulated.

Some of the obligations could be complicated by overlapping claims and a history of the sovereign partially paying debts with bonds. Determining the exact amount that each creditor is owed could be complicated, Cooper and Walker wrote.

People in contact with Venezuelan President Nicolas Maduro and Vice President Delcy Rodriguez have said for months that they want to restructure the country’s debt. But even conversations about restructuring have been limited by US sanctions, which bar US “persons” — citizens and residents of the country, along with businesses based there — from “dealing” with PDVSA, President Nicolas Maduro, or many of the country’s other leaders, except under the terms of a license from the OFAC. 

Sanctions, which the US ramped up during the Obama and Trump presidencies, were part of why Venezuela defaulted in the first place. The country invited investors to start a conversation on a debt restructuring in 2017, but the US persons in the group were prohibited from talking business with Maduro’s chosen emissary, sanctioned cabinet member Tareck El-Aissami. In 2019, the US made a restructuring doubly impossible by barring US persons from buying any Venezuelan bonds or being involved in any new issuance.

While the US ended the secondary-trading ban in October 2023, state oil company PDVSA and the Central Bank of Venezuela are still “specially designated nationals,” meaning US persons are barred from doing business with them absent a license.

Along with sanctions, there is the issue of state recognition. Former President Donald Trump withdrew recognition of Maduro as the head of state of Venezuela, instead recognizing the “interim government” led by National Assembly President Juan Guaido. The basis for that recognition was that the legislature elected in 2015 was the last legitimate democratic body in the country. That group of lawmakers had a term that ended in 2020, and even after giving Guaido repeated extensions of power, it largely closed down at the start of 2023.

The US has since left the remains of the interim government in charge of legal disputes in US courts and with negotiating the protection of Venezuela’s US assets, but has gradually returned to de facto recognition of the Maduro government. The Joe Biden and Maduro governments exchanged prisoners earlier this year after talks in Doha.

Venezuela's government will need broader recognition to once again work with the IMF, the fund said in 2022. The IMF normally conducts an Article IV review of member state economies each year, but the last one it completed in Venezuela was in September 2004. The fund also has not let the Maduro government access billions of USD worth of special drawing rights issued during the peak of the COVID-19 pandemic. Many economists and analysts believe IMF involvement will be necessary for a broad restructuring. 

by Steven Bodzin and Giovanni Riva, New York and Rome

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