‘Hyper focus’ on Venezuela, PDVSA as bonds drop heading into Maduro vote; Atento prices notes

By Rebecca Melvin

New York, July 28 –Venezuela and Petroleos de Venezuela SA dropped further on Friday as selling accelerated ahead of a national election being held on Sunday to vote in a so-called constituent assembly.

Weeks of protests, resulting in a government crackdown banning protests, and two national strikes have been held in opposition to the vote, which will determine which of some 6,000 candidates will be part of the 545-seat assembly. The candidates represent various segments of society such as oil workers and farmers, and by many accounts the pool of candidates over-represents supporters of President Nicolas Maduro.

Despite strong internal opposition and pressure from the international community to avert what some see as a humanitarian crisis, Maduro is resolutely moving ahead with the vote.

Last week, the United States threatened to impose sanctions against Venezuela if Maduro held the vote. And many believe that U.S. economic sanctions against Venezuela would almost certainly guarantee a sovereign debt default.

A default with Maduro as the nation’s leader would be the worst-case scenario for debt holders, a New York-based analyst told Prospect News.

Venezuela has about $70 billion of international debt, including $36.7 billion of sovereign bonds and $32 billion of PDVSA bonds, and not including loans, the analyst said.

On Friday, the Venezuela situation was dominating attention on Latin America debt trading desks.

“There is hyper focus on [Venezuela and PDVSA] since nobody wants to be long into the weekend,” a New York-based trader said.

Because of being swamped with the Venezuela flow, the trader was not able to watch other areas of the market like a new deal from Atento SA for $400 million of 6 1/8% notes. The five-year notes priced at par on Friday.

Among bonds in trade were PDVSA’s 6% notes due 2026, which fell to as low as 32¼ by late morning. The all-time low for that bond was right around 30.

The PDVSA 8½% notes due 2017 slid down to 75 bid, 76 offered, down from 77 bid, 79 offered on Friday.

“Everything is down another 2 to 3 points,” the trader said.

The near freefall in notes over the past two weeks has left the sovereign curve more 10% lower than at the beginning of July. That drop will eat in to recovery values, the analyst said. And while a jump in oil prices has typically been positive for Venezuela bonds, the price of oil is not really a factor.

Ultimately oil prices will be one input among many in any restructuring of the bonds that occurs, but right now it is not influencing the bond curve.

Elsewhere, more rate news followed on the heels of Wednesday’s U.S. Federal Reserve’s decision to stand pat on its key interest rate and start readying markets for assets to begin dropping off its balance sheet. On Friday, Russia held its key rate steady at 9% and the central bank of Colombia decided to cut its benchmark rate by 25 basis points to 5½%.

The Banco de la Republica de Colombia said that the country’s annual inflation rate stood at 3.99%, with core inflation at 5.09%, as of June, which was lower than the month earlier.

Those decisions followed on the Central Bank of Turkey’s decision on Thursday to maintain its one-week repo rate at 8%, its overnight marginal funding rate at 9¼% and overnight borrowing rate at 7¼%.

The United States held its key fed funds rate steady at 1% to 1.25% on Wednesday.

© 2015 Prospect News.
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