U.S. restrictions on trading of Venezuela, PDVSA bonds won’t hurt Maduro regime: analyst

By Rebecca Melvin

New York, Aug. 23 – Banning U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by Venezuela and Petroleos de Venezuela SA is impractical because it’s not going to accomplish the objective of limiting funds for the regime of president Nicolas Maduro, a Stifel emerging market strategist told Prospect News on Wednesday.

And because trading these bonds does not generate fresh funds to the government or PDVSA, its state-owned oil company, a ban is not likely to be implemented, Stifel emerging market sovereign strategy director, Victor Fu, said.

The bonds subject to a trading ban could be the “hunger bond,” PDVSA’s 6% notes due 2022, of which only a small portion is still held by Venezuelan entities, Fu said.

In addition the Venezuela 2036 notes may be a target, but those bonds have to be physically delivered and are not readily tradable, the strategist said.

An alternative way to punish Maduro, who has undermined the country’s democracy by sidelining the opposition-controlled congress and in other ways, is to ban new issues, Fu said. But the country has already lost access to international capital markets in practical terms.

News reports that the U.S. government is considering trading restrictions sent the Venezuela and PDVSA curve lower by 1 or 2 points early Wednesday but by the close the market recovered some of that loss, sources said.

PDVSA’s 2022 notes were trading at 28, which is still below where Goldman Sachs Asset Management purchased the $2.8 billion of the bonds in late May in the low 30s.

At that time of the Goldman purchase, there were reports quoting Julio Borges, head of Venezuela’s opposition Congress, that Goldman was making a quick buck on the back of the suffering Venezuelan people.

The U.S. government has promised measures to squeeze Maduro and hopefully put him out of office. But it is unclear what form those measures will take, and “you cannot predict” when it will happen, Fu said.

Therefore, on the relative value basis, Stifel continues to favor purchasing Venezuela’s 2023 bonds, the PDVSA 2021s and the 2035s over the Venezuela 2034s.

“These three bonds have similar coupons, but PDVSA 21s and VENZ 23s can be pulled to par much faster than VENZ 34s in a muddle-through scenario. Furthermore, the prices of VENZ 23s and PdVSA 35s are almost 2 points lower than that of VENZ 34s,” Fu wrote in a note published Wednesday.

“Based on the same reasoning, we also like VENZ 28s over 34s as the price of 28s is 2.5 points lower than that of 34s,” Fu wrote in the note.

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