Venezuela prepares record $240 billion sovereign debt restructuring

Venezuela is preparing to undertake what would become the largest sovereign debt restructuring in history, unveiling a debt burden of $240 billion that is significantly larger than previously estimated.

According to sources familiar with the country’s plans who spoke to the Financial Times (FT), Venezuela will disclose detailed information about its financial position to creditors in the coming weeks, revealing total liabilities well above market estimates of between $150 billion and $200 billion.

Delcy Rodríguez, Venezuela’s interim leader, is aiming to reach an agreement with creditors by the end of the year that would pave the way for the country’s return to international capital markets after nearly a decade of exclusion under Nicolás Maduro, who was abducted in a US military operation in January.

According to sources familiar with the plans, US investment bank Centerview Partners, appointed by Caracas as its financial adviser, has helped prepare a strategy to reduce Venezuela’s debt burden to a “sustainable” level.

The plan is expected to be published in early July.

The same sources said a long-awaited macroeconomic framework will also be released later this month.

Under that framework, the size of Venezuela’s battered economy is expected to be estimated at approximately $100 billion, down sharply from $370 billion in 2012, the final year of Hugo Chávez’s presidency. The country’s debt-to-GDP ratio is projected to exceed 200%.

Unusually for a major sovereign debt restructuring, the debt sustainability analysis was not prepared by the International Monetary Fund.

Bondholders are likely to interpret the assessment of the country’s finances as a signal that Venezuela will seek a substantial reduction in the value of its debt.

However, some members of Venezuela’s opposition fear that an accelerated restructuring process conducted outside the IMF’s framework could weaken the country’s negotiating position with bondholders.

Venezuelan bonds traded at 33 cents on the dollar before Maduro’s abduction and are now changing hands at around 55 cents. Those prices, however, do not include years of unpaid interest.

An investor who recently exited Venezuelan bond positions said:

“This is one of the first major restructurings where the debt sustainability analysis has not been prepared by the IMF. There should be an IMF-coordinated discussion among creditors … and a properly audited debt perimeter.”

Sources familiar with Venezuela’s debt plans said technical discussions have been taking place with the IMF regarding the country’s economic data and that the restructuring proposal will resemble an IMF-style framework.

Venezuela resumed relations with the IMF in April after a seven-year hiatus.

An IMF spokesperson said the institution is not involved in the debt restructuring process announced by Venezuela.

“Fund staff remain in regular contact with the Venezuelan authorities, including on the macroeconomic outlook, as we do with all member countries. The Fund stands ready to assist the authorities as needed.”

The restructuring would surpass Greece’s $200 billion default during the eurozone crisis in 2012, making it the largest sovereign debt restructuring on record.

Because of the diversity of Venezuela’s liabilities and the length of time since Caracas stopped servicing many of its obligations, the process had already been viewed as more complex than any previous restructuring.

Bonds issued by the government and state oil company PDVSA represent the single largest and most verifiable component of Venezuela’s debt, totaling about $60 billion, plus roughly $40 billion in post-default interest. That amount is increasing by approximately $5 billion per year.

Investors had previously estimated that Venezuela owes between $30 billion and $50 billion to oil companies and commercial creditors through unpaid bills, as well as more than $20 billion in legal compensation awarded to companies whose assets were seized under the Chávez administration.

Venezuela is also estimated to owe between $10 billion and $20 billion to China under debt arrangements previously serviced through oil exports but now believed to be in default, around $6 billion to Russia, and approximately $4 billion to development banks.

Moving faster than many creditors had expected, Rodríguez’s government launched the restructuring process last month by appointing French banker Matthieu Pigasse from Centerview. During his time at Lazard, Pigasse advised Greece, Argentina and other countries on major sovereign debt deals.

Pigasse, who joined Centerview in 2020 and was later joined by his former Lazard colleague Hamouda Chekir, has longstanding ties to Caracas through advisory work on the sale of Citgo, PDVSA’s former US subsidiary, and has maintained a close relationship with Rodríguez for more than a decade.

According to a letter obtained by the Financial Times, Lazard recently approached the Venezuelan government seeking to replace Centerview, offering to work for a fee of approximately $25 million, which it described as delivering “exceptional value.”

Lazard had sought a similar fee for its role in Greece’s 2012 debt restructuring.

Venezuela immediately rejected the proposal.

In a statement, the government said:

“As in our previous adviser selection processes, we applied a consistent set of criteria focused on team experience, expertise, quality analysis and an understanding of our circumstances … Based on the same assessments, we selected Centerview Partners as our financial adviser.”

Other sources familiar with the discussions said Centerview’s fee has not yet been finalized. Lazard declined to comment.

Bondholders are closely focused on how quickly the country can revive oil production and how crude sales restarted under US mediation following Maduro’s departure are progressing.

The Venezuelan central bank, which has resumed publishing some economic indicators on a regular basis, reported this week in its balance of payments data that oil exports totaled $5.5 billion during the first three months of the year.

Although that figure was up from $4.4 billion during the final months of the Maduro administration, it remains well below levels recorded before the default and the imposition of US sanctions.

Jeff Grills, a portfolio manager at Aegon Asset Management, said: “The timeline makes the situation even more complicated … Could this be resolved by 2026? There’s a small chance. But I think this will stretch into 2027.”