Venezuela improves on military muscle-flexing; Fed-wary issuers to hit sooner than later

By Paul A. Harris

Portland, Ore., Sept. 2 – The sovereign and corporate debt of Venezuela saw improvement on Friday, on news that the military was moving to take the beleaguered country’s troubled energy production sector into its own hands, while at the same time cracking down on the opposition to President Nicolas Maduro.

Meanwhile sources see a big post-Labor Day pipeline that will likely bunch toward the front of that timeframe, as Friday’s non-farm payroll reports, while weak to expectations, appears to leave the door open to a move in the Fed Funds rate when the Federal Open Market Committee meets on Sept. 20 and Sept. 21.

Venezuela, oil and guns

Deeply distressed Venezuela paper got a boost on news that Pacific Rim Energy, a start-up company with close ties to the Venezuelan government, signed a 25-year concession with the military-run oil, gas and mining company Camimpeg to reactivate oil fields in the eastern states of Sucre and Monagas, according to a market source.

PDVSA 5½% bonds due 2037 were a buck better on the day at 36¼ bid, the source said.

Sovereign paper saw modest or better improvement across the maturity curve, the source added.

Venezuela’s dollar-denominated 9¼% notes due 2027 were 49 bid on Friday, up from 48 7/8 bid on Thursday.

The Venezuela 11.95% notes due 2031 were 51½ bid on Friday, up from 50 bid on Thursday.

Pacific Rim Energy reckons the fields in question contain 9.6 billion barrels of crude and can be developed at a cost of $8 to $10 per barrel.

The “concession” news came as the government was attempting to crack down on opposition efforts to revoke the presidency of Nicolas Maduro.

There were reports that government troops and tanks were deployed in urban areas throughout the country.

There were also reports that roads and tunnels leading into Caracas were blocked by the military in an effort to stem a tide of protesters pouring in from across the country.

Maduro was threatening to revoke the immunity of Assembly leaders who are insisting that the military lacks the authority to sign oil agreements, the source said.

Window ahead of Fed

Supply picked up out of Asia and the Middle East this week, but Friday was quiet ahead of the extended Labor Day holiday weekend in the United States, a London-based trader said.

Trading was muted on Friday in the new Qatar National Bank SAQ paper, according to the trader.

The new QNB Finance Ltd. 2 1/8% notes due Sept. 7, 2021 were a couple of basis points wide of the mid-swaps plus 115 bps issue price, the source said.

The $1 billion issue priced Wednesday in a deal led by Mizuho, Barclays, HSBC, MUFG, QNB Capital and Standard Chartered Bank.

Elsewhere the new add-on paper to the Slovenia 1½% notes due March 2035 were tighter at mid-swaps plus 94 bps bid offered on Friday.

The €1 billion tap, now fully fungible with the original €1 billion issue, came at mid-swaps plus 98 bps on Wednesday.

A sizable post-Labor Day deal pipeline exists, the trader said.

Friday’s non-farm payroll number – reporting that payrolls grew by 151,000 jobs in August versus the 180,000 jobs that were expected – will potentially impact the way those deals move into the market.

Although weak to expectations, the payrolls report is not believed to be sufficiently weak to take a potential increase in the Fed Funds rate off the table – an increase that the markets are watching for when the FOMC meets on Sept. 20 and 21.

Currently economists are giving such an increase a 40% chance of happening, sources say, up from 22% before the Federal Reserve Bank’s recent conference in Jackson Hole, Wyo.

Potential September issuers may want to come into the market before any potential volatility that might ensue, should a Fed Funds rate increase materialize, the trader said.

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