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As a follow-up to the report on Venezuela that I sent out on August 2: Even though the state oil company PdVSA has just sweetened the terms of a proposed swap of more than USD 7 billion of bonds maturing next year with longer-dated paper due in 2020, there seem to be no lawyers or investment bankers eager to put their names to it. The proposal has been part of an attempt to improve the company’s cash flow situation, but Standard & Poor’s has just lowered its grade on the affected bonds to triple-C and has made it clear that in its view the swap would be a “distressed exchange” and, thus, a kind of default. Fitch is reportedly also planning to assign a triple-C rating to the proposed new Petroven notes. Besides, offering part of PdVSA’s US subsidiary Citgo Petroleum as collateral would create a host of new problems as it would deprive other bond holders of their main security, could trigger a change-of-control clause in Citgo’s own debt (making some USD 5 billion payable immediately), and stump a number of foreign creditors who are already suing the company for non-payment on contracts.

Even if the bond swap falls through, as I expect, PdVSA and Venezuela will probably be able to muddle through into next year. They will do their utmost to do so since the alternative would be grim. In case of a default, all of the government’s or PdVSA’s assets outside the country would become “attachable,” and this means that oil exports would be disastrously impeded. But 2017 will be another matter. The country and Petroven will have to scrape up USD 15 billion due for repayment in the next 14 months. China, which lent the government USD 65 billion, is still owed some USD 25 billion. It agreed last May to a deal under which Venezuela is making interest payments only, postponing settlement of principal to a later date, but Beijing does now appear to be at the end of its rope and is unlikely to offer any fresh loans. Even if OPEC’s agreement to cap output holds, it will most likely just stabilize oil prices, not push them substantially higher in a sustainable way. And this means that oil service companies (which have already slashed their operations in Venezuela), airlines and many other creditors abroad will continue to have to sit on unpaid bills.

This is what I expect regardless of what happens in the political arena. There, the national electoral council (CNE) has just taken steps to complicate the conditions for a presidential recall referendum so drastically that a successful attempt of this sort becomes almost inconceivable. While the constitution mandates that 20% of the electorate must register nationally to support a recall initiative, the CNE now says that this applies to every single one of Venezuela’s two-dozen states. Polling stations will be open for the purpose only on three days (October 26, 27 and 28) and for just a few hours each day, and the opposition to President Maduro will get only one-third of the voting machines it has asked for. The CNE further says that if a referendum is held, this will have to be no earlier than in the middle of next year’s first quarter, which means, in effect, that if one succeeded in ousting Maduro after January 10, Vice President Isturiz would take over and the ruling party would retain control......... That is, if there is no blowout of the now intense social tensions. The opposition Democratic Unity alliance has marked the 12th of this month as a day of “national mobilization.”