By Libby George and Karin Strohecker
LONDON, July 8 (Reuters) - Venezuela is seeking to push through in record time one of the most complex debt restructurings ever attempted, with claims approaching $200 billion, even as the country's recovery is set back by devastating earthquakes killing thousands of people.
Bondholders say Caracas hopes to secure the early stages of the overhaul of its sovereign debt and that of state oil firm PDVSA launched in May as soon as November to unlock billions of badly
needed investment in sectors from oil to power.
But debt experts warn speeding a deal through could leave the country — just emerging from years of financial isolation — burdened with unsustainable debt for decades just as it needs billions of dollars to rebuild after last month's earthquakes.
"This will surely be the most complex sovereign debt restructuring of my lifetime," said Mitu Gulati, a sovereign debt expert and University of Virginia professor.
"I've never seen anything done like this."
At issue is whether Venezuela can produce a credible Debt Sustainability Analysis despite opaque and unwieldy debt, with claims ranging from arbitration awards and oil-backed loans by China to bonds and past-due interest. A DSA assesses a country's debt against its economic outlook to determine recoveries lenders can expect from a restructuring.
It has not published full debt or economic statistics for years.
Veteran sovereign debt lawyer Lee Buchheit, who has represented many countries in debt restructurings since the 1980s, said the timeline was far too short for a credible DSA, though both sides may have incentives to strike a quick deal. Authorities may be keen to signal a return to international markets and bondholders to avoid a more rigorous International Monetary Fund-led assessment that could reduce recoveries.
"What may be presented as a DSA will in fact just be a manufactured set of numbers that appears to support some form of bond restructuring." That could spell trouble down the line, said Buchheit, who was hired in 2019 by then-opposition leader Juan Guaido to advise on a debt restructuring.
DOUBTS OVER GOVERNMENT DATA
Analysts estimate Venezuela's total liabilities at nearly $200 billion. Greece's restructure of its $200 billion debt took roughly a year following its 2012 default.
Venezuelan government officials did not respond to Reuters requests for comment.
The need to fully assess damage from the earthquakes, which killed more than 3,000 people and damaged hospitals, schools and other infrastructure, adds another layer of complexity.
Venezuela's backers have bet on a swift debt resolution since the U.S. seized then-President Nicolas Maduro in January.
Caracas announced in May it had hired Centerview Partners and aimed to complete the DSA by end-June. Investors now expect it this month.
The IMF, whose assessments typically take months to complete, said it was not involved in Venezuela's restructuring. That and the lack of an independent audit for the figures has added to the concerns about credibility.
Centerview Partners, the financial advisers appointed by the government for the restructure, declined to comment.
The Financial Times reported last month that Venezuela's debt burden could reach $240 billion — $40 billion above previous estimates — without explaining the additional amount. This alarmed some creditors and spurred calls for IMF involvement.
"If you don't have a process that can be verified by independent observers, the IMF, then you run the risk of cronyism and corruption," said Christopher Sabatini, Chatham House's director of the Latin America Programme.
Caracas-based financial consultancy Sintesis Financiera said the government should pause the process as using economic data and assumptions made before the earthquakes would be a "costly mistake" that risked underestimating the debt relief required.
THE CASE FOR A BIG HAIRCUT
Earthquake damage estimated at $7 billion is a "massive blow" to an economy already facing a slow recovery, said Joan Domene, Oxford Economics' chief economist for Latin America.
"It will make the case for the government to plead for an even bigger haircut," Domene told Reuters, referring to the loss creditors take when debt is restructured.
Some say Centerview and Venezuelan officials understand the importance of what they are trying to do.
"It's right to have a healthy degree of skepticism," said Elina Theodorakopoulou, of Manulife Investment Management, which holds Venezuelan bonds. "But surely you would believe that the people that are putting that together realize the significance of doing that credibly."
SPEED COULD BRING BENEFITS
Venezuela's economy has contracted by an estimated 75% since 2013 under the weight of sanctions, corruption and years of underinvestment. The earthquake damage to infrastructure has added losses equivalent to as much as 6% of GDP.
Few expect major foreign investment until lenders can no longer pursue Venezuelan assets.
Venezuela has "been in limbo for years," said Rodrigo Olivares-Caminal, professor at Queen Mary University, who is advising some private investors on Venezuela. "We want to unlock funding...(but) publish a DSA that will not be contested."
Getting it wrong could leave Venezuela overburdened with debt, crowding out infrastructure and healthcare spending.
"If you give away all of your goodies now... my worry is that we're just pushing the real restructuring problem down the road," said Gulati.
(Reporting by Libby George and Karin Strohecker; Additional reporting by Mayela Armas; Editing by Emelia Sithole-Matarise)
