By The Wall Street Journal Interactive EditionApril 20, 2018, 3:15 p.m. EST
Venezuela bonds have delivered top returns in emerging markets this year as bondholders form a committee to prepare for restructuring talks.
Full Story
(solo titolo,
contenuto riservato)
Ecco l'articolo.
One of the worst bond trades of 2017 has become one of the best so far this year: It’s Venezuela.
The country’s sovereign bonds are the top performers in emerging markets this year, up 9.7% as of Friday, compared with a drop of 2.3% for the benchmark JPMorgan EMBI Global Diversified Index. The bonds lost 34% last year as Venezuela’s economic crisis worsened with skyrocketing infant mortality, plummeting oil production and shortages of food and medicine.
The government of President Nicolás Maduro stopped paying most debts of the country and state-oil company Petroléos de Venezuela, or PDVSA, last fall, but prices of their bonds have been rising since February. Analysts say regime change seems more imminent, an event they believe could lead to stabilizing the economy and oil production, and restructuring more than $150 billion of unpaid debts.
A committee of Venezuela’s largest bondholders has formed and hired financial adviser Millstein & Co. to prepare for eventual negotiations with a new government, a person familiar with the matter said.
On the ReboundVenezuelan bonds are the best performing in emerging markets this year, despite a default and a spiralingeconomic crisis.Year-to-date performanceSource: JPMorgan via Thomson Reuters
%Venezuelan bond indexEmerging marketsbond indexJan. ’18Feb.MarchApril-10.0-7.5-5.0-2.50.02.55.07.510.012.515.0
Fund management companies with large Venezuelan bond investments include Ashmore Group, Fidelity Investments, Goldman Sachs Asset Management, GMO, Pictet Asset Management and T. Rowe Price Group. Ashmore, Fidelity, Goldman, GMO and T. Rowe declined to comment. Pictet couldn’t immediately be reached for comment.
A restructuring is still far off, but bondholders are organizing now in hopes it will help them stay unified and bargain for higher payouts when talks begin, the person familiar with the matter said. The committee will also start liaising with Venezuela’s other large creditors, including China and Russia, the person said. Both countries provided billions of dollars in trade finance to the Maduro government and may compete with bondholders for repayment.
Mr. Maduro is up for re-election on May 20. Local polls show his challenger, Henri Falcón, as a clear favorite, but the U.S., European Union and Canada have raised questions about the legitimacy of the election process, and many political analysts expect Mr. Maduro to prevail. If Mr. Maduro wins, some investors expect the U.S. to impose long-threatened sanctions against Venezuela’s only real source of dollars, oil exports to the U.S., depriving Mr. Maduro of the financial resources to remain in power.
U.S. Vice President Mike Pence called for
greater international pressure to isolate Mr. Maduro at a meeting of leaders from across the Americas held in Peru this month.
To maintain power, Mr. Maduro will likely “become more authoritarian, but that is going to lead to more sanctions and social unrest,” said Mauro Roca, Latin America sovereign analyst at the TCW Emerging Markets Group, which holds more Venezuelan debt than the benchmarks it follows. “Now it doesn’t seem this situation is going to last for years. We are entering a period that will be measured in months.”
The prospect of a regime change is the only event that matters to bondholders, says Siobhan Morden, strategist at Nomura Securities. Even if Mr. Maduro remains president after the election, declining revenue from the collapse in oil production could make it difficult to continue to pay the military that protects the Maduro government. The military’s loyalty to Mr. Maduro is crucial for him to maintain power.
READ MORE
The Trump administration has barred U.S. investors from buying new bonds from Mr. Maduro’s government, but they continue to trade its existing debt.
About $3 billion face amount of PDVSA bonds have changed hands since Feb. 1, according to data from MarketAxess. The oil company's most traded bond due in 2022 was quoted at 33 cents on the dollar Friday from 20 cents in February. That compares with an even bigger rally in Venezuelan bonds in 2016,
when investors bet the Maduro administration would choose to use dwindling cash reserves to make bond payments rather than pay for basic imports like food and consumer goods.
About $3 billion face amount of state-oil company PDVSA bonds have changed hands since Feb. 1. PHOTO: CARLOS GARCIA RAWLINS/REUTERS
Regime change may be closer, but current prices are too high given the potential chaos such a power shift could bring said Greg Saichin, head of emerging-markets fixed-income investing at Allianz. “The risk to that scenario is pandemonium if different factions start pushing their own guys,” he said. “Bond prices could go to the teens.”
Even if Venezuela achieves a relatively smooth transition, there will be intense political pressure to repudiate its bond debts because of the
humanitarian crisis afflicting much of the populace there, Mr. Saichin said. Allianz doesn’t own unsecured Venezuelan bonds but does hold some bonds backed by shares in PDVSA’S U.S. subsidiary, Citgo Petroleum Corp., he said.
But Jan Dehn, head of research at Ashmore Group, a large holder of Venezuelan debt, said some investors are underestimating how quickly Venezuela could turn around if new leadership were to reopen the country’s oil reserves to foreign firms.