US-based Citibank has notified Petroleos de Venezuela SA that it is going to stop processing payments on its bonds, which could cause the Venezuelan state-owned oil company big problems.
Venezuela may suspend payment of foreign debt, “triggering a cascade of events that could further destabilize the country”, Stratford continued.
The company has been struggling to get an international bank to provide all services necessary to carry out such a responsibility. Things look even worse now that Citibank has resigned its responsibility of making payments on the various bonds issued by PDVSA.
Failure to pay bondholders could eventually lead to a restructuring of the debt, but PDVSA, which uses credit to cover operating costs, would likely suffer a loss of production because lenders could be less willing to extend credit to a bankrupt company.
If production falls, it could exacerbate the country’s instability. Currency flows for public finances, which are crucial for paying for imports of food and other necessities, would be reduced, thus intensifying the extreme inflation and creating more social discontent.
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