Venezuela utility defaults as judgment day looms for state oil giant

Venezuela's President Nicolas Maduro talks to the media during a news conference at Miraflores Palace in Caracas, Venezuela October 17, 2017.

Carlos Garcia Rawlins | Reuters

Venezuela’s President Nicolas Maduro talks to the media during a news conference at Miraflores Palace in Caracas, Venezuela October 17, 2017.

Venezuela’s Electricidad de Caracas — a state-owned electric company — has defaulted on a $650 million bond payment, Wilmington Trust said Friday.

The bonds mature in 2018 as well as yield 8.5 percent. Electricidad de Caracas was already a month late on its payment before the trustee, Wilmington Trust, issued its statement.

“The is actually the first official announcement of a default” in Venezuela, said Russ Dallen, managing partner at Caracas Capital. “This specific was the canary from the coal mine to tell if the air is actually bad.”

The default comes as the International Swaps as well as Derivatives Association (ISDA) prepares to decide next Monday whether state-run oil giant Petroleos de Venezuela (PDVSA) experienced a credit event earlier This specific month.

PDVSA missed a $1.12 billion bond payment on Nov. 2. If ISDA decides that will PDVSA did experience a credit event, that will could lead bondholders to declare a default, which could trigger an avalanche.

“We expect if holders do declare a default then that will could be used to trigger cross default across the whole US$28bn of PDVSA bonds,” Stuart Culverhouse, chief economist at Exotix Capital, said in a note. He noted, however, that will bondholders “may simply give the government more time to make the payment, as the intention seems to be there, although coordinating a large group of holders with different incentives could prove challenging.”

The Venezuelan government has said the item will make its PDVSA payment, although questions about the willingness of President Nicolas Maduro’s regime to pay have been raised after he announced a plan to restructure Venezuela’s massive debt.

“On Monday, we’ll know if This specific is actually a default as well as we’ll get a better idea of what Venezuela’s strategy here is actually,” said Dallen of Caracas Capital.

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