Hedge Fund Veteran Says $130 Billion Bond May Just Fix Venezuela
Hedge Fund Veteran Says $130 Billion Bond May Just Fix Venezuela
(Bloomberg) -- Venezuela watchers have floated plenty of ideas for fixing the economic and humanitarian crisis, from a bitcoin drop to an oil-for-food plan, but the idea of wrapping all the nation’s debt into one giant bond issuance is perhaps the wildest proposal yet.
Money owed to a disparate group of creditors including China, Russia, bondholders and oil service firms could be turned into one long-dated $130 billion bond, according to Daniel Osorio, a former hedge fund manager who’s now president of New York-based Andean Capital Advisors, which advises money managers on Latin America.
The idea would be to avoid years, if not decades, of negotiations to restructure Venezuela’s defaulted bonds after the country’s debt ballooned to 173 percent of gross domestic product. Osorio said it may be possible to orchestrate such a deal within 18 months of U.S.-backed National Assembly President Juan Guaido taking over. Skeptics say it’s unrealistic to lump all creditors into one bucket and that far from easing negotiations, it would complicate them.
“The last thing that Venezuela needs is to follow the path of Argentina and be blocked out of the international credit markets for fifteen years,” Osorio said. “Venezuela needs time. To rebuild the country, they’ll have to be afforded some flexibility in order to return oil production to what it once was.”
Ricardo Hausmann, an economic adviser to Guaido, has warned investors to brace for significant pain. Venezuela is in no position to start servicing its debt and will need a cash injection of $60 billion or more from the International Monetary Fund, he said in January.
Osorio’s idea is that the bond would start at a low coupon without amortizations for the first few years, giving a new government breathing room to boost oil production from a seven-decade low without fretting over payments. Then it would ramp up in the middle years before decreasing in the final years before it came due.
Iraq has shown Venezuela what’s possible, he said. While still politically fragile, the war-torn nation has increased oil production to nearly 5 million barrels per day from 579,000 in 1996. Its gross domestic product has climbed tenfold to more than $200 billion in the past two decades.
Yet the sheer size of the bond would makes it all but impossible. The largest emerging-market debt sale on record is Saudi Arabia’s $17.5 billion issue in 2016. A $130 billion bond would be incredibly liquid, making it a prime target for traders to hedge against emerging markets, according to Siobhan Morden, head of Latin America debt strategy at Nomura in New York.
“Creditors like options, not one size fits all,” Morden said. “This has characterized every debt restructuring.”
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net
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