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Blackwater USA | Daily Brief

Brexit

  • John Barrow, the Speaker of the House of Commons, rejected a vote on PM Johnson’s Brexit deal yesterday on a technicality, which means that today lawmakers will vote yes or no on whether they support the deal in principle.
  • It’s awkward because the vote is likely to be close, and even if the deal wins approval from a majority, it could still fail later because of the details this vote overlooks.

Syria

  • Pres. Erdogan is traveling to Sochi today to meet Pres. Putin and start figuring out what northern Syria is going to look like without the U.S. policing it. Analysts say Russia is looking for a bigger role in the region, and wonder what tone Putin will take with Erdogan.
  • Erdogan is going to ask for Putin’s support enforcing a 30 km-wide safe zone along Syria’s northern border: the agreement Erdogan struck with Trump covers only about a quarter of its 500 km length, so Erdogan is now seeking other international support for booting the Kurds from the other three-quarters of it.
  • The emergency ceasefire that VP Pence and SecState Pompeo struck with Erdogan runs out tonight, and Erdogan has threatened to unleash on any Kurds still in the “safe zone.”

Afghanistan

  • Speaking at the Resolute Support mission HQ in Kabul, SecDef Esper tried to reassure his audience that the U.S. takes its “longstanding commitment” to Afghanistan seriously, and does not plan to suddenly withdraw like it did in Syria. However, three current and former defense officials told NBC that the Pentagon is working on plans for a sudden withdrawal from Afghanistan, just in case.
  • Taliban attacks in Kunduz killed at least 16 Afghan police.

Russia

  • A Russian hacking group, Turla, hacked a fellow hacking group from Iran, OilRig, to steal information that OilRig had stolen from victims in over 35 countries, which included an unnamed UK academic institution and various governments (mostly in the Middle East). In addition, Turla used OilRig as a cloak for its own cyberbreak-ins that leveraged OilRig’s entry points.

Iran

  • Iran said it gave the U.S. a list of about 20 detained Iranians that it wants freed in a prisoner swap, implying that such a swap was on the table. The U.S. hasn’t said anything about it.

China

  • A new report from the China-based Hunan institute said that China now has more “unicorns”—privately-held companies worth over $1 billion—than the U.S.: 206 vs. 203. Together, they represent 80% of the world’s unicorns. Of course, private companies in China are rarely truly private—the biggest ones enjoy at least implicit state backing, even if they aren’t listed on public exchanges.

Lebanon

  • PM Hariri announced an economic package that he hopes will satisfy protesters. It aims to halve the salaries of some officials, overhaul the broken power sector, and cull ineffective ministries and government bodies.
  • We’ll see if that’s enough for protesters, whose frustrations have been simmering for years over much bigger concerns. I imagine some will stay angry until Hariri resigns…and is replaced by someone else who won’t be able to fix the broken system.

Kashmir

  • India and Pakistan both blamed each other for shelling across disputed borders in Kashmir over the weekend. AFP reports that at least 10 people died, including civilians.

Libya

  • The UNHCR denied at least 87 applications from mostly-African refugees from Tripoli’s Gathering and Departure Facility (GDF) who wanted to be resettled in third countries, saying there are “simply not enough evacuation and resettlement places available” in the program.

Venezuela

  • A lawyer for PDVSA creditors says he believes Venezuela’s opposition has enough money to make the Oct. 28th bond payment his clients are due, and thus stop them from seizing Citgo. Others aren’t so sure where the opposition would get the cash, and think Citgo could turn to a restructuring or bankruptcy instead. A WSJ article pasted below outlines some possible outcomes.
  • Chevron’s former head of E&P in Africa and Latin America, Ali Moshiri, is now raising $500 million through his new firm, Amos Global Energy, to make the first big investments in Venezuela once U.S. sanctions are lifted. He’ll start a fundraising roadshow next month.

Azerbaijan

  • In a rare acknowledgement that real reporting happens outside of its borders, Azerbaijan’s government used a sub-headline piece on Azernews to lash out at the U.S. for criticizing police violence against protesters in Baku: “Those intervening in Azerbaijan’s internal affairs need to focus on violence in their own country.”
  • Ok, now we can get back to typically mundane Azeri headlines like today’s “NASA’s International Space Apps Challenge hackathon finishes in Baku,” or the daily feature: “Armenia violates ceasefire with Azerbaijan __ times.”

Israel

  • PM Netanyahu gave up on forming a unity government in Israel, and handed the opportunity to do so to his rival, Benny Gantz—along with a few jabs: “I have made all efforts to bring Benny Gantz to the negotiating table, all efforts to form a broad national unity government, all efforts to prevent another election. Unfortunately, time after time, he simply refused.”
  • Gantz’s Blue and White party won one more seat in September’s election than Netanyahu’s Likud party, and may have an easier time forming a coalition from a larger minority on the left than Netanyahu did from a smaller, ultra-Orthodox one on the right.
  • Gantz will have 28 days to try to reach a coalition; if he fails too, Israel may face a third election.

Other News

  • PM Trudeau’s Liberals won the most seats in yesterday’s Parliamentary election in Canada, which means Trudeau is likely to remain PM. However, the Liberals lost their absolute majority, so they will have to negotiate a coalition with one or more smaller parties.
  • Workers at BHP’s Escondida copper mine—the world’s largest—plan to walk off the job today, in solidarity with protesters in the Chilean capital of Santiago. The union president said today’s mini-strike is “a warning,” and it doesn’t sound like it will turn into a prolonged walkout.

Venezuela Can Afford Payment to Keep Control of Citgo, Creditor Lawyer Says (WSJ)

Bondholders are preparing to take control of Citgo, considered the country’s most valuable foreign asset, if they aren’t paid

Venezuela can afford to make a payment to bondholders next week, avoiding a $913 million debt default that would cost the country control of Citgo Petroleum Corp., according to a lawyer for creditors circling the Houston-based refiner.

Andrew Rosenberg, who represents creditors with collateral rights over Citgo, said he believes Venezuela’s U.S.-backed opposition leaders have access to enough cash to make an upcoming payment on bonds backed by a majority stake in the company, a Venezuelan state asset since 1990. But bondholders are also drawing up plans to take over Citgo if they aren’t paid, he said.

The looming payment has the opposition government led by Juan Guaidó scrambling. After taking control of Citgo from Venezuela’s ruling leftist government in February, opposition leaders now risk losing control of the company, considered the country’s most valuable foreign asset.

It is also an obvious source of repayment for creditors—bondholders that lent money to Venezuela under President Nicolás Maduro and multinational companies that had property in the country nationalized under his late predecessor, Hugo Chávez. There isn’t nearly enough of Citgo to go around, sparking a race among creditors to lay claim to the company.

Off all the claimants circling Citgo, its most immediate threat is from bondholders including Ashmore Group PLC, BlackRock Financial Management Inc. and Contrarian Capital Management LLC that are represented by Mr. Rosenberg and hold a 50.1% stake in the company as collateral.

While Venezuela has been careful so far to pay down the Citgo-backed bonds, Mr. Guaidó’s parallel government has signaled they won’t be paid in full on Oct. 28.

A voluntary restructuring of the debt could avert a default, Mr. Rosenberg said. Bondholders have signed confidentiality agreements to negotiate with the opposition but haven’t reached a standstill agreement, a person familiar with the matter said. Citgo has considered bankruptcy as one option if creditors closed in, and companies often file for chapter 11 protection shortly before an expected foreclosure. Citgo declined to comment.

After a default, the bondholders can try to foreclose on the collateral and put the shares up for sale, which could take Citgo out of Venezuelan control and deal a crippling blow to the opposition movement in Caracas.

Bondholders would appoint a board of directors consisting of Americans to run Citgo for an interim period while the stock is put up for auction, Mr. Rosenberg said. Financial adviser Ducera Partners LLC has been hired to assist in a potential marketing process, he said.

After the bondholders are repaid, excess value from the sale would return to the opposition, Mr. Rosenberg said. He said the most likely buyer was a major U.S. oil company.

Mr. Guaido’s aides have been lobbying the Trump administration to modify U.S. sanctions on Venezuela to take away bondholders’ ability to foreclose on the shares. Seven mostly Republican lawmakers have urged President Trump to order the modification, which would shield Citgo from the consequences of default.

So far, the Treasury Department hasn’t done so. Mr. Rosenberg dismissed lawmakers’ concerns that Citgo would be dismantled and sold for parts after a foreclosure, saying that creditors have no reason to push for a liquidation because they can only recoup what they are owed—and no more.

“Corporate raiders who break up companies, it’s because they bought it for $6 a share and they think they can get $9”, Mr. Rosenberg said. “There’s no possible upside to us in disrupting operations. It’s entirely fearmongering.”

He also said the opposition can pay bondholders either from cash held by Citgo itself or from blocked accounts that came under Mr. Guaidó’s control when the U.S. recognized him as Venezuela’s rightful leader in January.

Other Venezuela bondholders including T. Rowe Price Group Inc. had offered to cover the debt payment, but only if the Treasury Department’s trading restrictions on Venezuelan debt were lifted, a person familiar with the matter said. The Treasury Department has signaled it isn’t inclined to lift the restrictions, which block sales of Venezuela bonds between U.S. entities.

José Ignacio Hernández, Mr. Guaidó’s attorney general, disputed that the opposition had the resources to pay in full on Oct. 28. Its goal is “finding a reasonable solution in an orderly and consensual process,” he said.

The opposition-controlled National Assembly in Caracas passed a resolution on Tuesday declaring the pledge of Citgo stock by state oil giant Petróleos de Venezuela SA to be illegal, showing the political difficulties of dealing with debt incurred under Mr. Maduro.

With U.S. support, Mr. Guaidó and his allies wrested control of Citgo’s boardroom in February, severing its ties with PdVSA and installing friendly directors. In August, a Delaware judge ratified them as the company’s rightful board. The takeover marked a victory for the opposition, but meant the bond payments were now its responsibility to make.

The uncertainty surrounding Citgo underscores the difficulties in the Trump administration’s strategy of putting financial pressure on Mr. Maduro to try to force his ouster. Last year, before Mr. Guaidó made his bid for Venezuela’s presidency, the Treasury Department authorized bondholders to pursue Citgo after a default.

Citgo has argued the policy no longer makes sense with the company now under the control of Mr. Guaidó, a U.S. ally. Mr. Maduro, who retains control of most key state institutions in Venezuela including the military, has accused the U.S. of “stealing” Citgo by funneling it to the opposition.

“Citgo at this point is more than Venezuela’s refiner in the U.S.,” said Amir Richani, a risk analyst with ClipperData. “It represents the internal struggle of the country’s politics.”

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