Venezuela, PDVSA trade at low end of recent range; emerging CEEMEA markets see better bid

By Rebecca Melvin

New York, Aug. 30 – Venezuela and Petroleos de Venezuela SA bonds were trading at the low end of their recent ranges on Wednesday and otherwise not reacting very much to news that Cantor Fitzgerald LP has stopped trading Venezuela debt on the heels of U.S. restrictions imposed on trading last Friday, a market source said.

Cantor pulled all bonds issued by Venezuela and PDVSA from auctions and told customers those trades are restricted on Tuesday, according to report in the Wall Street Journal. But a second source said that Cantor was only avoiding certain bonds from the country.

Cantor declined to comment, but it was suspected that the move was motivated by a desire to avoid inadvertently violating the U.S. sanctions aimed at keeping President Nicolas Maduro’s regime from potentially profiting from such trade when it continues to move toward authoritarianism despite an outcry both within and outside the country to return to democratic practices.

The latest restrictions apply to trading of new bonds issued after June 1 or from trading with Venezuelan government entities. They do not prohibit U.S. firms from trading Venezuela debt, so the Cantor decision did not seem to be leading other firms to follow suit. On the contrary, “other houses are picking up the volume,” said a New York-based trader, adding that he did not feel the Cantor move was very smart.

Still the Cantor move does “add a layer of concern” for the Venezuela and PDVSA secondary market, the trader said.

Volumes are subdued but that was as likely to be attributable to the fact that it is the last unofficial week of summer, heading into the long U.S. holiday weekend, as to anything else, the trader said.

“Obviously it dries up some liquidity, but basically the market is consolidating at the lower end of the range,” the trader said.

Also on Wednesday, there was confusion regarding a notice by the Depository Trust & Clearing Corp., which said it was suspending clearing services for Venezuela and PDVSA bonds, but later the clearinghouse said it was an error and resumed services, a market source said.

Also Fitch Ratings said on Wednesday it downgraded Venezuela’s long-term foreign and local currency issuer default ratings to CC from CCC, senior unsecured debt to CC from CCC and country ceiling to CC from CCC. Short-term foreign and local currency issuer default ratings were affirmed at C.

Fitch said the downgrade reflects its view that a default is probable given the further reduction in financing options for the government of Venezuela following the imposition of additional sanctions.

“The sanctions prohibit U.S. persons or entities based in the U.S. from a series of financial transactions with the government and PDVSA, including any dealings in new debt as well as dealings in certain existing bonds owned by the Venezuelan public sector and dividend payments to the government of Venezuela,” the agency said in a release.

In trading on Wednesday, the PDVSA 8˝% notes due 2020 were trading at 72˝ bid, 73˝ offered.

The PDVSA 8˝% notes due 2017 were quoted at 89˝ bid, 90˝ offered.

While the weakest issues, including the PDVSA 6% notes due 2026, were trading around 30 bid, 31 offered.

Overall, emerging markets in the Central & Eastern Europe, Middle East and Africa were better bid Wednesday as investors looked to put money to work ahead of August month end and the upcoming Labor Day holiday in the United States and Eid holidays in the Middle East and parts of Africa, some of which are already underway.

Kazakhstan’s sovereign bonds were an outperformer with the whole sovereign curve better bid and spreads tighter by about 7 to 10 basis points, a London-based trader said.

The move reversed Tuesday’s action, which saw things soften on the back of concerns related to North Korea’s missile launch over Japan, and despite lower oil prices and higher gas prices as Tropical Storm Harvey reduced refining capacity in the Texas Gulf Coast.

“People are topping up and things are pretty supportive,” the trader said, adding that even very oil sensitive names are ticking along nicely and spreads are performing.

© 2015 Prospect News.
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