Venezuela bonds to trade without accrued interest

By Rebecca Melvin

New York, Jan. 5 – The trading practice on Venezuela’s sovereign bonds is changing to flat without accrued interest on Tuesday after a decision by the Emerging Market Traders Association on Friday, according to a market source.

It was decided to change from with accrued interest during an EMTA conference call early Friday to change the trading convention, the market source said.

EMTA said that the market practice recommendation agreed to in principle will become effective on Tuesday. But it would not confirm the nature of the change “at this point.”

“The decision to change to flat, or dirty pricing, with no claims on past due coupons means that effectively coupons will land where they land,” the market source said. They will go to the holder of record at the time of payment, and given the expectation that the record date gets changed forward upon an eventual restructuring, the change from with accrued interest is likely to spark some interest in the bonds.

There was no immediate market reaction, but more volume and possibly a pop in pricing of the severely distressed debt were expected to occur on Monday, the source said.

Currently the Venezuela notes due 2022 are trading below 20, and the Venezuela notes due 2026 and 2031 are trading at about 19.5.

“I feel that it’s odd that they didn’t do this before,” the market source said regarding the EMTA decision. “But there was an expectation that because the government said it would pay, it would pay.” Instead, “the government has been buying time, and I don’t think the market is going to get paid anything,” the source said.

In related news, additional people were added to the list of Venezuelans sanctioned by the U.S. government, according to the Office of Foreign Assets Control on Friday.

Four more Venezuelans were added to the list, which now stands at 51 people, according to an update to OFAC’s list of specially designated nationals and blocked persons.

The additions included Gerardo Jose Izquierdo Torres, State Minister for the New Border of Peace; Rodolfo Clemente Marco Torres, Governor of Aragua State; Francisco Jose Rangel Gomez, former Governor of Bolivar State; and Fabio Enrique Zavarse Pabon, Commander of the Capital Integral Defense Operational Zone of the National Armed Forces.

The assets of these individuals are blocked, and U.S. persons are generally prohibited from dealing with them.

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