Venezuela Bondholder Sees Sovereign Debt Restructuring Involving Value Recovery Instrument Linked to State-Owned Enterprise Dividends, Super Senior Sovereign Bonds

Reporting: Magnus Scherman Venezuela bondholders could be offered to exchange some of their long-defaulted paper for an equity-like value recovery instrument, or VRI, tied to the financial performance of certain state-owned energy companies, Celestino Amore, Co-founder of Venezuela-focused Canaima Capital told Octus. Payouts on such a Venezuelan VRI would be funded by dividends from chosen energy companies and/or divestment proceeds from their eventual privatization, Amore said. Restructuring advisors have worked on models involving the use of Venezuela’s long list of so-called “empresas mixtas” or joint companies, a term for large commodity businesses the Venezuelan state controls while keeping international partners involved as minority joint venture partners. PDVSA is involved in four joint companies with U.S. group Chevron. Below is a 2017 overview from PDVSA of “empresas mixtas” jointly owned with Russia’s Rosneft and China’s China National Petroleum Corp.: Swapping existing debt into a dividend-backed VRI would be a cost-effective way for Venezuela to clear some of its significant debt overhang as payouts would only occur once the underlying companies deliver a profit to share. The financial risk arising from a delay in resuming large-scale oil operations would thereby be shared by both VRI holders and the Venezuelan state. Venezuela’s bonds[...]