Venezuela Works to Unwind $154B of Defaulted Debt

Venezuela President Nicolas Maduro has embarked on one of the most complex, years-long debt restructurings in decades, as he looks to reestablish Venezuela on the world’s financial stage, Bloomberg reports.

With Rothschild & Co. at the helm as investment adviser, the nation intends to unwind $154 billion of defaulted bonds, loans and legal judgments to scores of creditors — from Wall Street to Russia. Maduro has repeatedly said he is willing to speak with bondholders to solve the debt headache.

While many investment executives are skeptical of whether Venezuala can overhaul itself from the pariah it currently is, those who believe that this time Maduro could succeed point to the country’s nascent economic rebound and the possible lifting of sanctions that prohibit Venezuela from issuing debt. Recently, the government succeeded in ending years of hyperinflation and restoring growth to the economy.

Venezuela’s economy began tumbling in 2017 as oil output faltered and it began defaulting on its debt. The United States and Venezuela cut diplomatic ties in 2019, and the U.S. does not recognize Maduro as president.

“The probability of a restructuring process of the Venezuelan debt starting in 2025 is bigger than the market is pricing or expecting,” says one investment executive holding out hope, Alejandro Grisanti, director of financial firm Ecoanalitica of Caracas.

Also, Maduro is expected to win reelection as president in July. Should the international community decide the election is fair, it could be a reboot for Maduro and his country.

The nation’s oil production has rebounded, thanks to investments by U.S. company Chevron Corp. However, with an output of 890,000 barrels a day, this is far below Venezuela’s peak of more than 3 million barrels of oil a day.

There is no shortage of naysayers on the gambit.

“This would be the most complex restructuring since Iraq after the 2003 invasion,” says Mark Widemaier, a law professor at the University of North Carolina who specializes in sovereign bond contracts.

“Debt restructuring takes time for a reason,” adds Edward Cowen, CEO of Winterbook Capital of London, one of the holders of Venezuelan debt. “The government needs to deal with priorities as they arrive — and this is not a priority.”

Steve Kargman, founder and president of international restructuring advisory firm Kargman Associates of New York, cautions: “A debt restructuring will not be able to happen in a vacuum. There will also need to be a massive humanitarian relief effort for the Venezuelan people as well as a major reconstruction effort for the economy.”