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Venezuelan bonds due for payment this autumn are dipping lower in price as concerns rise that the tropical storm that struck Texas could destabilise vital oil revenues at a sensitive time for the country. The Trump administration last week slapped financial sanctions on Caracas that prevent the politically-fractured nation from issuing fresh debt or equity in the US. However, the White House decided against embargoing Venezuela’s oil exports, much of which are shipped for refining in Houston. Given the destruction wreaked by the storm this week, it could curtail Venezuela’s access to the US, according to Antoine Halff, director for global oil markets at the Center on Global Energy Policy at Columbia University. “The storm could impose financial pain on Venezuela without the United States actually sanctioning it, since US demand for the country’s crude will fall, at least for as long as the refineries are down, thus forcing Caracas to find other outlets, and likely agree to significant discounts, for its oil,” Mr Halff noted. “That would add to the Maduro regime’s struggle to meet debt payments.” Tankers carrying about 15.3m barrels of oil are currently drifting outside Texas ports, prevented from offloading their cargo because of the refinery closures, according to ship-tracking data compiled by Bloomberg. Of this, 2.3m barrels are from Venezuela, and one Venezuela-owned Citgo refinery has been temporarily closed. While investors have largely shrugged off the impact of the new US sanctions on most of the bonds issued by Venezuela and its national oil company PDVSA, the prices of bonds due for partial repayment or with interest payments this autumn — which total $1.7bn in October and $1.9bn in November — have dipped as the impact of Harvey became clearer. The price of the $1.1bn PDVSA bond scheduled for full repayment in early November has slipped from a three-year high of 93 cents on the dollar to 89.5 cents. Authers’ Note Email Get exclusive insights into investment from senior commentator John Authers. Premium DAILY One-Click Sign Up That of another PDVSA bond due for a $984m payment has fallen from just over 76 cents on the dollar to 72 cents. Last autumn PDVSA needed a debt swap to manage a repayment pile, which would now be prohibited under the US sanctions regime. But the latest dip is exacerbated by concerns over interrupted oil revenues, according to Federico Kaune, head of emerging market debt at UBS Asset Management. “Harvey could impact oil demand and hurt them this autumn,” he said. In May, the latest month for which government data are available, Venezuela sold crude oil to US refineries owned by companies including Chevron, Marathon Petroleum, PBF Energy, Phillips 66, Total and Valero, as well as its own Citgo, according to official US data. The Gulf coast averages about 700,000 barrels per day of Venezuelan crude oil imports. Mr Kaune said that if Venezuela manages this autumn’s debt payments it might be able to muddle through 2018 and 2019 without defaulting, given a somewhat easier repayment schedule in the coming years. Russia and China have also been willing to step into the shoes of commercial creditors and keep Venezuela financed despite a lack of access to bond markets, and the US sanctions in practice preclude an orderly restructuring. Nonetheless, most investors expect the Latin American country to have to restructure its financial liabilities at some point, with the prices of Venezuela’s bonds largely reflecting the view that a default is inevitable and will lead to a messy, painful debt workout. Credit-default swaps, a kind of financial insurance against creditors reneging on their payments, indicate that investors think Venezuela is comfortably the riskiest sovereign debtor on the planet, with the prices of its CDS trading at almost 10 times the price of Greece, the second-riskiest country. Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web. Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 0 Save to myFT Latest in Capital Markets Harvey floods fuel fears of risks to mortgage bonds Global Market Overview Dollar and stocks rebound as Korean tensions subside US debt ceiling angst sends Treasury bill yields higher fastFT Borrowing costs for US blue chips falls to lowest level since November The Short View Jonathan Eley Midnight at the lost and Pfand
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Venezuelan bonds due for payment this autumn are dipping lower in price as concerns rise that the tropical storm that struck Texas could destabilise vital oil revenues at a sensitive time for the country. The Trump administration last week slapped financial sanctions on Caracas that prevent the politically-fractured nation from issuing fresh debt or equity in the US. However, the White House decided against embargoing Venezuela’s oil exports, much of which are shipped for refining in Houston. Given the destruction wreaked by the storm this week, it could curtail Venezuela’s access to the US, according to Antoine Halff, director for global oil markets at the Center on Global Energy Policy at Columbia University. “The storm could impose financial pain on Venezuela without the United States actually sanctioning it, since US demand for the country’s crude will fall, at least for as long as the refineries are down, thus forcing Caracas to find other outlets, and likely agree to significant discounts, for its oil,” Mr Halff noted. “That would add to the Maduro regime’s struggle to meet debt payments.” Tankers carrying about 15.3m barrels of oil are currently drifting outside Texas ports, prevented from offloading their cargo because of the refinery closures, according to ship-tracking data compiled by Bloomberg. Of this, 2.3m barrels are from Venezuela, and one Venezuela-owned Citgo refinery has been temporarily closed. While investors have largely shrugged off the impact of the new US sanctions on most of the bonds issued by Venezuela and its national oil company PDVSA, the prices of bonds due for partial repayment or with interest payments this autumn — which total $1.7bn in October and $1.9bn in November — have dipped as the impact of Harvey became clearer. The price of the $1.1bn PDVSA bond scheduled for full repayment in early November has slipped from a three-year high of 93 cents on the dollar to 89.5 cents. Authers’ Note Email Get exclusive insights into investment from senior commentator John Authers. Premium DAILY One-Click Sign Up That of another PDVSA bond due for a $984m payment has fallen from just over 76 cents on the dollar to 72 cents. Last autumn PDVSA needed a debt swap to manage a repayment pile, which would now be prohibited under the US sanctions regime. But the latest dip is exacerbated by concerns over interrupted oil revenues, according to Federico Kaune, head of emerging market debt at UBS Asset Management. “Harvey could impact oil demand and hurt them this autumn,” he said. In May, the latest month for which government data are available, Venezuela sold crude oil to US refineries owned by companies including Chevron, Marathon Petroleum, PBF Energy, Phillips 66, Total and Valero, as well as its own Citgo, according to official US data. The Gulf coast averages about 700,000 barrels per day of Venezuelan crude oil imports. Mr Kaune said that if Venezuela manages this autumn’s debt payments it might be able to muddle through 2018 and 2019 without defaulting, given a somewhat easier repayment schedule in the coming years. Russia and China have also been willing to step into the shoes of commercial creditors and keep Venezuela financed despite a lack of access to bond markets, and the US sanctions in practice preclude an orderly restructuring. Nonetheless, most investors expect the Latin American country to have to restructure its financial liabilities at some point, with the prices of Venezuela’s bonds largely reflecting the view that a default is inevitable and will lead to a messy, painful debt workout. Credit-default swaps, a kind of financial insurance against creditors reneging on their payments, indicate that investors think Venezuela is comfortably the riskiest sovereign debtor on the planet, with the prices of its CDS trading at almost 10 times the price of Greece, the second-riskiest country. Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web. Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 0 Save to myFT Latest in Capital Markets Harvey floods fuel fears of risks to mortgage bonds Global Market Overview Dollar and stocks rebound as Korean tensions subside US debt ceiling angst sends Treasury bill yields higher fastFT Borrowing costs for US blue chips falls to lowest level since November The Short View Jonathan Eley Midnight at the lost and Pfand
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