Venezuela, PDVSA pare losses as U.S. mulls trading restrictions; Shinhan Bank roadshow eyed

By Rebecca Melvin

New York, Aug. 23 – Venezuela and Petroleos de Venezuela SA bonds traded down 1 or 2 points early Wednesday but recovered some of those losses by afternoon as market players reacted to news that the United States is considering restricting trading in Venezuelan debt.

The Venezuela credit market was a little better but remained under pressure, a New York-based trader said after the market close.

PDVSA’s 6% notes due 2022 were trading at 28.

The market is reacting to this uncertainty, the trader said. “We have to wait and see what kind of sanctions they are going to be, whether they are light or tough.”

A U.S. ban is being considered as a way to pressure Venezuelan president Nicolas Maduro who has undermined the country’s democracy by sidelining the opposition-controlled congress and taking other steps that mark an oppressive or totalitarian regime.

According to reports, the move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by Venezuela or PDVSA, the state-owned oil company. The ban would be a way to hurt the regime without hurting the people of Venezuela, who are already suffering under the throes of economic, social and political crises.

But Stifel strategist Victor Fu said that restricting trading of Venezuela debt will not achieve the objective of hurting Maduro as that trading is not tied to fresh funds for the government. Instead it will hurt U.S. financial firms, Fu said.

Fu does not think that the trading restrictions will be imposed.

A third source said that U.S. institutions trading Venezuela debt could be affected but that the fallout will be limited only to Venezuela debt trading.

“I think Venezuela has been isolated from financial markets for so long that the spillover should not be as big as one could imagine as first sight for other regional credit markets,” the market source said.

Venezuela is specific rather than systemic, the source said.

As expected, Vice President Mike Pence hinted at economic sanctions when speaking before Venezuelans living in Miami on Wednesday afternoon but provided no specific information.

Before the event, a trader said he expected no news from the event except for possibly negative headlines.

Pence expressed unwavering resolve from the U.S. government in support of the people of Venezuela and against the Maduro government for undermining the country’s democracy, according to a report in the Miami Herald.

The Herald also said that it has learned that economic sanctions could come as early as next week.

“You can be assured: Under the leadership of President Donald Trump, the United States of America will continue to bring the full measure of American economic and diplomatic power to bear until democracy is restored in Venezuela,” the Herald quoted Pence as saying, as he addressed a few hundred people at Our Lady of Guadalupe Catholic Church in the Doral section of Miami.

Spreads easier

Elsewhere, emerging secondary market trading was quiet and dull, a London-based trader said, with spreads just slightly wider, but “nothing to get too excited about.”

The primary markets were quiet, but in Asia Shinhan Bank announced a roadshow for a possible dollar-denominated deal that would price sometime after Sept. 8 when investor meetings conclude.

The Seoul, South Korea lender has mandated BofA Merrill Lynch, BNP Paribas, HSBC and MUFG to arrange the meetings for fixed-income investors.

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