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Venezuela’s Lone Undefaulted Bond Is Set for Guaido Lifeline

Ben Bartenstein
Venezuela’s Lone Undefaulted Bond Is Set for Guaido Lifeline

(Bloomberg) -- The economic team of Venezuelan opposition leader Juan Guaido is pushing to ensure a $71 million interest payment is made on the nation’s last remaining bond not in default.

On Wednesday, the opposition-controlled National Assembly’s finance commission approved a measure to vote next Tuesday on the disbursement to holders of state oil producer PDVSA’s notes due in 2020. The group of lawmakers recommended Congress support the payment. That’s because the bond is backed by a majority stake in Citgo, the Venezuelan-owned U.S. refiner which the opposition now oversees after seizing its Houston office. Failure to pay would likely trigger a rush to collect on the Citgo collateral.

Technically, the PDVSA board controlled by President Nicolas Maduro has the power to pay as well. It forked over nearly $1 billion late last year to stay current on the bond, even as Venezuela missed more than $10 billion in payments on other securities. Yet by all accounts the government has no intention of ponying up now that Guaido’s team runs Citgo’s daily operations and U.S. sanctions prevent the refiner from paying dividends to PDVSA.

“This bond has special characteristics,” said Alejandro Grisanti, a member of a parallel PDVSA board appointed by Guaido in an effort to assert control over the country’s finances. “It’s over-collateralized with the position in Citgo, and that’s one reason we can reach a consensus among all Venezuelans that this payment should be made.”

Venezuela’s Finance Ministry didn’t respond to requests for comment.

The interest payment is due April 29. The bond contract includes a 30-day grace period before the securities would be declared in default. The 8.5 percent notes were quoted at about 90 cents on the dollar Tuesday, according to data compiled by Bloomberg, compared with an average price for Venezuelan and PDVSA debt of around 30 cents.

Guaido’s team will probably make the payment in order to maintain control of Citgo, Venezuela’s crown jewel abroad, according to Jan Dehn, head of research at Ashmore Group Plc in London. The firm is the largest reported holder of the bonds, according to data compiled by Bloomberg.

“They will have to find the money,” Dehn said.

The Guaido-led opposition intends to make the payment using funds in a PDVSA escrow account that it controls, rather than from money tied to Citgo, according to Grisanti.

“The payment needs to come from PDVSA,” he said. “It’s not a debt contracted by Citgo or the central government.”

(Updates with Congress vote in second paragraph.)

--With assistance from Fabiola Zerpa.

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Boris Korby, Brendan Walsh

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