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  #171  
Old 04-10-2018, 01:51 PM
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Mary Pat Campbell
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VENEZUELA


https://www.forbes.com/sites/kenrapo.../#48c601724919



They only -partly- defaulted, not default-defaulted.

https://www.wsj.com/articles/russia-...ief-1510762281


I love the defaulting hokey-pokey
They defaulted.

Stealthily.

https://www.ft.com/content/c291cb76-...9-de94fa33a81e

Quote:
Venezuela stopped bond payments in September
Central bank data suggest government is in ‘a stealth default’, says analyst
Spoiler:

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https://www.ft.com/content/c291cb76-...9-de94fa33a81e

Venezuela stopped paying bondholders in September, according to central bank data, contradicting statements by President Nicolás Maduro that the country would continue to honour its debts while negotiating a resettlement with its creditors.

The data show that regular foreign debt payments of hundreds of millions of dollars a month, in line with the country’s sovereign obligations, fell to a few tens of millions from last October for fees and the legacy of a 1980s-era restructuring.

“This proves that Venezuela is deliberately hoodwinking bondholders and engaging in a stealth default,” said Russ Dallen of boutique bank Caracas Capital, who follows Venezuelan debt closely.

The data were posted in an Excel file as part of a recent revamp of the central bank’s website and include monthly expenditures in US dollars on public foreign debt payments going back to 1996. Previously, data on foreign debt payments were published in the form of a ratio that revealed little information, Mr Dallen said. “This must have been posted by an intern,” he added.


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Mr Maduro announced on November 2 that the country would restructure and refinance its debts after making one last payment on a bond owed by PDVSA, the state-owned oil company. S&P Global, the rating agency, declared the country in default shortly afterwards.

Yet holders of bonds issued by PDVSA and Elecar, a state-owned electric utility, have continued to receive sporadic payments, which have amounted to about $2.5bn since Mr Maduro’s announcement. Several payments have been made late, sometimes after the 30-day grace payment for coupon payments.

No payments at all have been received on bonds issued by the government of Venezuela, despite assurances that the process of payment was under way.

The central bank data, which cover payments of sovereign debt only and exclude obligations by PDVSA and other state entities, show that just $83m was paid in October, compared with sovereign obligations amounting to $465m, according to data from Caracas Capital.

Payments in November fell to $28m, compared with obligations of $183m, and in December declined to $23m, compared with obligations of $242m.

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Mr Dallen, who broke the news of the stalled payments to his clients on Monday, said October’s payment included about $74m due on a “Brady bond” that resulted from Latin America’s debt restructuring in the late 1980s. The payments in November and December attributed to foreign debt service would include lawyer’s fees and other costs, he said. Mr Dallen said no money had been received by any holders of Venezuelan sovereign bonds.

He said Venezuela had chosen carefully which PDVSA and Elecar bonds to continue paying. Payments included $984m owed by PDVSA on a bond due in 2020 that is secured by 51 per cent of the shares in Citgo, Venezuela’s US refining and distribution subsidiary. But he said evidence from clearing houses suggested these payments, too, had come to a halt.

“We don’t think they are paying PDVSA bonds either,” he said. “They have been doing it [defaulting] strategically to sow confusion. They have said they have begun the process of paying things they clearly did not pay, and blamed it all on sanctions.”

The US has imposed several rounds of sanctions on Venezuelan individuals and institutions. Adding to pressures last August, it also banned any involvement in new bonds or shares issued by the government or PDVSA. Last month it prohibited involvement in the country’s proposed digital currency, the petro, as well.

A spokesperson for Venezuela’s economic ministry was not immediately available for comment.



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  #172  
Old 04-17-2018, 02:15 PM
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Mary Pat Campbell
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CHINA

http://usa.chinadaily.com.cn/a/20180...cf65189bb.html

Quote:
China doesn't face a debt-default risk
Spoiler:
The ratio of outstanding government debt by the end of a year to that year's GDP is a key indicator of whether a government faces a debt-default risk. The debt ratio can reflect an economy's ability to repay its debts. Studies show China's overall debt is under control, as its debt ratio is within safety limits and sovereign balance sheet is quite sound-the total debt ratio of China's central and local governments was 38.8 percent at the end of 2016, far lower than the 60 percent red line set by the Maastricht Treaty signed by European Community members in 1992 to integrate Europe.

China's liability ratio, too, is lower than the ratios of major economies and some emerging market economies, and even lower than the members of the Organization for Economic Cooperation and Development.

China's debt ratio is 52.97 percentage points lower than the average of the OECD members-the central government's debt ratio is 62.68 percentage points lower than the OECD members', though the local governments' ratio is 9.71 percentage points higher than the OECD average.

Size of economy makes a big difference

Besides, whether a government faces a debt risk should be judged not only in terms of debt expansion, but also by the size of the economy, that is, whether it has enough resources at its disposal to pay down the debt in the face of a financial risk.

In-depth research into China's sovereign balance sheet in recent years shows the continued increase in leverage has led to rising debt since the global financial crisis in 2008, but correspondingly the country's sovereign assets have also expanded, yielding a high level of net value for the Chinese government. For example, in 2015, China's net asset value was 101.8 trillion yuan ($16.21 trillion), the country had sovereign assets totaling 241.4 trillion yuan, and a debt of 139.6 trillion yuan. So, given the low liquidity of State assets of administrative organs and limited transfer of land rights, China's sovereign net assets will remain positive even after deducting 16.2 trillion yuan from State assets and replacing 68.5 trillion yuan land assets with 3.1 trillion yuan worth of land-transferring fees.

Important guarantees for debt repayment

State assets, including operating assets and some natural resources, are important guarantees for debt repayment. Although China has sufficient sovereign assets to cover the liabilities, it may sometimes face difficulties in repaying some debts. It should be noted, however, that the State assets may be underestimated and the debt overestimated.

Since the State assets' value was measured using historical-cost accounting, the net value of the assets and the government's ability to repay could increase if it is measured in terms of market value or fair value. And debt could be overestimated, because by simply adding up certain liabilities and contingent liabilities, and using different probability methods for transferring contingent liabilities will lead to different outcomes. Also, except for losses in contingent liabilities, other non-performing debts such as subordinate loans and doubtful loans, in fact, can be partly repaid. Therefore, the real amount of sovereign net assets is likely to be much higher.

China's high net asset value structure is very different from those of major developed countries, because its resident sector, private enterprises and government departments (including State-owned enterprises) account for about one-third each of the total net assets while in developed economies, the resident sector accounts for 70-80 percent of net assets, with the public sector having a small share. Hence, with sufficient stock assets and other available resources, China's debt would be less risky.

Practical measures aimed at controlling debt risks

However, China's debt problem, especially the local governments' debt problem, deserves special attention, and the authorities should not ignore the root cause of what could be a systemic problem. To prevent any potential debt risk, the first thing to do is to deepen institutional reform to curb debt growth. There are four specific suggestions for achieving the desired results:

First, the authorities should further promote market-oriented bond issuance to check the rise of local governments' debt. Actually, the local governments' bond market has greatly improved in terms of marketization in recent years, although there is still room for improvement, especially in the bond issuance pricing mechanism. The low bond spread indicates the existing pricing mechanism doesn't reflect the true market value of some local government bonds and their cost of risk.

The authorities therefore should establish a market-oriented pricing mechanism with less administrative intervention-this is also important to increase the marketization of local debts and realize differential pricing regionally.

Second, a sound credit rating system should be established for the issuance of local bonds, while promoting information disclosure and market supervision on local loans can increase the local governments' financial transparency and make them more self-disciplined.

Third, a capital budget system should be established immediately to tighten regulations especially on State financing. And to minimize the debt risk from the very beginning and make fund allocation more efficient, it is necessary to work out a mid-term financing plan for major infrastructure construction projects, extending it later to cover all infrastructure projects. This plan should cover all sources of funding from all levels of government, such as financial subsidies, equities and debt financing.

And fourth, a regulation is required to impose severe penalties on the local governments that fail to reduce debt. There is also a need to set up a financial bankruptcy system for the local governments to curb debt.

Contingency plan to control local governments' debt

Local authorities are responsible for repaying their respective local governments' debts, and the central government is not obligated to bail them out, says the contingency plan to deal with the local governments' debt released on Nov 14, 2016. The plan also says the ability to control the debt risk should be incorporated in the performance and promotion of local government officials. Holding the local municipal and county administrations responsible for debt restructuring, based on the cause and time period of their debt risks, will be a serious warning to those local governments that have run up huge debts.

After the provincial governments start shouldering more responsibilities for municipal and county administrations in terms of financial management, the central government should distance itself from the local governments on debt repayment so that the latter can independently establish their credit rating system and curb opportunism.

The central government should also further diversify bond investors-for example, stock exchanges and commercial banks can issue some enterprise-and individual-oriented bonds, or explore better ways to issue bonds for institutional investors with social insurance funds, housing provident fund or supplementary pension. The reform can also help solve the problem of almost all investors flocking to commercial banks, by promoting financial liquidity in the secondary market and attracting locals to supervise government finances.

The author is the president of China Development Bank.
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