Venezuela, PDVSA lower then back up again as default questions loom; Dar Al-Arkan drops

By Rebecca Melvin

New York, Nov. 14 – Some market players traded Venezuela and Petroleos de Venezuela SA bonds “flat,” or without accrued interest, on Tuesday and others traded the bonds with accrued interest after S&P Global Ratings downgraded the country’s debt to reflect a default of $200 million in coupon payments for its 7¾% bonds due 2019 and 8¼% bonds due 2024.

“In line with our criteria for timeliness of payments, we are lowering the issue ratings on these bonds to ‘D’ from ‘CC’[ and the long-term foreign currency sovereign credit rating on Venezuela to ‘SD’ from ‘CC,’” the ratings agency said in a release late Monday.

Most dealers were quoting the bonds flat, but one trader said he was not doing so because the Emerging Markets Traders Association had not yet made an official ruling on the situation.

He called S&P’s rating action “irrelevant,” adding “they didn’t tell us anything we didn’t already know.”

The Venezuela sovereign and PDVSA curves traded down sharply in early action but recovered by late afternoon to only 2 points lower. Earlier the bonds had been down 6 to 7 points.

The EMTA is expected to make a determination on whether the bonds should trade flat but had not reached a consensus on the matter as of Tuesday.

Meanwhile, the International Swaps and Derivatives Association accepted a request on Tuesday regarding Venezuela’s 2019 and 2024 bonds, with a meeting slated for Wednesday. Also, Luxembourg Stock Exchange suspended the listing and trading of the two bonds due to “an event of default” on Tuesday, with the suspension to be lifted on Wednesday following a change in the trading group and the interest quoting convention from clean to dirty.

A second trader said that some of the bonds were trading flat and some were not. Those on grace periods and unpaid coupons were trading flat, the trader said.

“The bonds were off this morning and they came back up again, finishing down 2 to 3 points,” the trader said.

PDVSA’s notes due 2022 were seen 32½ bid, 35½ offered at late afternoon, according to the trader. The PDVSA 2024 notes were 24½ bid, 26 offered; the PDVSA 2025 notes were 24 bid, 26 offered. Meanwhile, the Venezuela 2022 notes were 26 offered, 28 offered, and the Venezuela 2031 notes were 25½ bid, 27 offered.

“Without a ruling from the EMTA, and ISDA opining, I am going based on the last sort of edict of the EMTA,” a trader said.

S&P said local currency sovereign credit ratings on Venezuela remain on CreditWatch with negative implications, reflecting its view that the sovereign could again miss a payment on its outstanding debt obligations or advance a distressed debt exchange operation, equivalent to default, within the next three months.

The selective default rating means the country skipped a payment on a specific bond but is still committed to honoring its international debts.

If the sovereign cures its default on the overdue coupon payments and remains timely on other coupon payments before the restructuring debt operation is completed, the agency would raise the long-term foreign currency sovereign issuer credit and issue ratings to CC.

It is unclear if Venezuela cures the missing payments as claimed that investors will still pursue the default trigger.

ISDA has a meeting slated for Wednesday on an investor request to make a determination on Venezuela. In addition, a meeting was recessed on Tuesday to reconvene on Thursday afternoon to make a determination on PDVSA bonds.

On Monday, Venezuelan officials held a meeting for bondholders about restructuring its debt, but there was no plan outlined on what its requirements in restructuring would be.

The meeting was run by Venezuela’s vice president Tareck El Aissami, who is among those sanctioned by the U.S. government due to his alleged involvement in drug trafficking.

Elsewhere, emerging markets were weak in the Middle East and Africa regions, but JSC NC Kazakhstan Temir Zholy priced $780 million of 4.85% 10-year unsecured guaranteed notes at 100.393 for an initial yield of 4.8%. Pricing was tightened to 4.8% from initial talk in the 5% area during marketing.

Saudi Arabia-based property developer Dar Al-Arkan Real Estate Development Co. was notably weak on the heels of dramatic spread widening and lower pricing in Qatar’s Ezdan Holding Group 2021 and 2022 notes on Tuesday. Ezdan is also a real estate property developer.

Dar Al-Arkan’s near-dated bond, the 5¾% notes due 2018, traded down almost ½ point and its spread widened by 80 basis points. The moves were not as drastic for Dar Al-Arkan’s newest bond, 6 7/8% Islamic bonds due 2022, which priced in April and were down ¼ point to ½ point and wider by 20 bps.

Dar Al-Arkan’s 6½% notes due 2019 were wider by 74 bps, according to a market source.

© 2015 Prospect News.
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