Venezuela bonds hit highest since 2017 on hopes for political change By Reuters

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© Reuters. Corporate logo of the Venezuelan state-owned oil company PDVSA is seen at a gas station in Caracas


© Reuters. Corporate logo of the Venezuelan state-owned oil company PDVSA is seen at a gas station in Caracas

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By Karin Strohecker

LONDON (Reuters) – Dollar bonds of Venezuela’s government and state-run oil company PDVSA extended their rally on Thursday after Washington’s backing for opposition leader Juan Guaido spurred investor hopes for a turnaround in the impoverished country.

Guaido declared himself interim president on Wednesday, winning backing from Washington and parts of Latin America and prompting socialist Nicolas Maduro, the country’s leader since 2013, to break relations with the United States.

The South American OPEC country has the largest crude reserves in the world and is a major supplier to U.S. refiners.

Maduro’s government began gradually halting interest payments on some $50 billion in publicly traded debt in 2017 in an effort to save its dollars for the collapsing socialist economy, which is suffering from hyperinflation.

The government and state-owned companies owe more than $8 billion in unpaid interest and principal amid the collapse of the country’s once-wealthy socialist economy.

Venezuela’s sovereign bonds maturing in 2024 or beyond have been trading at less than half their face value since late 2014. They took another sharp leg lower in the second half of 2017 when Maduro called for a debt restructuring, with many trading at a quarter of their face value.

“For the first time there is a feeling that there is pressure coming from both outside and inside the country,” said David Nietlispach at Pala Asset Management, whose firm holds both sovereign and PDVSA [PDVSA.UL] bonds.

“It is a massive step if the Americans do not recognize the government anymore… On top of that, it looks like we have a candidate who seems to be able to unify the opposition.”

The European Union added its weight, saying Venezuela’s authorities should respect the “civil rights, freedom and safety” of Guaido but stopped short of following Washington and recognizing him over Maduro as interim president. At the same time Turkey and Russia voiced their support for Maduro.

Venezuela’s 2024 dollar-denominated sovereign bond issue gained 0.5 cents and after jumping more than 4 cents on Wednesday. It is now at its highest level since autumn 2017 when Maduro publicly called for a debt restructuring.

The PDVSA 2035 bond added 1.5 cents to hit its strongest level in nine months.

However, few hold out hopes that a resolution for investors would come in the very near future.

“There will be no debt restructuring for Venezuela until there is a regime change – that much seems clear,” said sovereign debt restructuring expert, Cleary Gottlieb’s Lee Buchheit.

Once a change had happened and a successor administration that was acceptable to the international community – including the United States – was in place, a number of things needed to happen.

North Asset Management’s Peter Kisler, whose firm bought up more Venezuelan bonds around six months ago, said the best case scenario was that things start to move on that front in a year or so’s time. It could be a lot longer though.

“Our general thinking is 30-40 cents is going to be the eventual recovery. The issue is that we are now getting there in some assets but it’s still not certain yet that he (Maduro) is going to go.”

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