PDVSA, Venezuela gain on Goldman bond buying; markets quiet after holiday; VimpelCom launches

By Rebecca Melvin

New York, May 30 – Venezuela was an outperformer in Latin America’s debt markets on Tuesday after news reports that Goldman Sachs Group Inc. purchased $2.8 billion of PDVSA (Petroleos de Venezuela SA) bonds last week, paying about $865 million for the paper.

“In general, stuff was up about ¼ point to ½ point in Venezuela, with the outperformer being the PDVSA 17s – the next maturity bond,” a New York-based market source said on Tuesday.

The nearest-dated bond is PDVSA 8½% notes due 2017, and those bonds were up 1¼ points to 91 bid, 91½ offered, according to the market source.

The Goldman bond purchases imply improved reserves of cash and liquidity for the company, so it is not surprising that the nearest-dated bond would benefit from that and reflect that, the source said.

Not only did PDVSA’s universe of bond debt improve during the first session of the holiday-shortened week, but so did Venezuela sovereign debt.

U.S. financial markets were closed on Monday in observance of the Memorial Day holiday.

PDVSA accounts for 90% to 95% of the dollar revenues of the Venezuelan government, so PDVSA and Venezuela sovereign debt “trade in lock step,” the source said.

Showing improvement across-the-board: the PDVSA 12¾% bonds due 2022, which were the bonds that Goldman Sachs purchased, were indicated 61½ bid, 62½ offered, according to a second market source. Goldman was reported to have paid 31 last week.

The 6% notes due 2026 were up by about 1¼ point to 38 7/8 bid, 39 7/8 offered.

The 5½% notes due 2037 were up by about a point to 38½ bid, 39½ offered.

Venezuela’s 6% notes due 2020 were seen slightly higher at 50¾ bid, 51¾ offered.

And its 11¾% notes due 2026 were up a point at 56¼ bid, 57¼ offered.

The gains came despite lower oil prices on Tuesday, as that market remains unsettled about whether the extension of production cuts announced last week by the Organization of Petroleum Exporting Countries and Russia will be enough to sop up excess supply in the market.

The front month U.S. crude oil contract settled down 14 cents, or 0.3%, at $49.66 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 45 cents, or 0.9%, to $51.84 a barrel on ICE Futures Europe.

The news of Goldman’s bond purchases was first reported in the Wall Street Journal on Sunday, and the reports quoted Julio Borges, head of Venezuela’s opposition-controlled congress, saying that Goldman was making a quick buck on the back of the suffering Venezuelan people.

There have been chronic shortages of food, medicine and other goods in Venezuela, and officials opposed to President Nicolas Maduro’s administration have recently asked international financial institutions to avoid any transactions that might help a government accused of human-rights abuses.

One New York source commented to Prospect News about the coverage and market reaction, “It felt to me like the market liked the fact that smart money was going in, and they were getting push back about it in media coverage. But it seemed a little spurious for the [Venezuelan government officials] to get so bent out of shape.”

The Goldman bond purchases buoyed other parts of Latin America as well. In Brazil, things were up, a market source said.

In Argentina, Grupo Clarin SA said that Cablevision SA, a subsidiary of Cablevision Holding SA, plans to price up to $50 million of class B fixed-rate notes.

The notes will be issued under the cable television company’s $1 billion global notes program, according to the company notice.

“It was decently busy for the first day back after a long weekend. It was orderly. It was not great, but decent,” the source said regarding the level of trading activity in the Latin America space.

ProShares Short Term USD Emerging Markets Bond ETF closed up 29 cents, or 0.37% to 78.26 on Tuesday.

Elsewhere, emerging markets opened mostly quiet on Tuesday after the long holiday weekend, with bonds on the whole mostly unchanged from Friday’s levels.

Yet, another week of inflows in emerging markets caused the arena as a whole to look supportive, a market source said, adding “it feels like a good window for supply ahead of the summer lull.”

The trajectory of U.S. Treasuries and nonfarm payrolls, which are due out on Friday, have the potential to tighten bonds, the source said.

Turkiye Vakiflar Bankasi TAO (Vakifbank) was quoted with a 100 bid in its recently priced 5 1/8% notes due 2022, a market source said.

The notes launched at 99.893 and had been as low as 99½ after pricing.

“[It was] a firm start in Turkey, with buyers of bank paper trickling in from the open,” a market source said.

Also VimpelCom Holdings BV is offering dollar-denominated senior unsecured notes, with Moody’s Investors Service assigning a provisional Ba2 (LGD4) rating to the new bonds to be issued by the company, a 100% indirectly owned subsidiary of VEON Ltd. (Ba2/stable).

Moody’s said its action reflects the expectation that within the next nine to 12 months VEON will complete the transformation of its debt/capital structure, moving to a predominantly unsecured and unguaranteed centralized group-financed model from the current subsidiary-financed model.

The agency said debt investors will have a single credit reference and benefit from pari passu credit ranking of the majority of the group’s obligations. As part of the process, VEON will also reduce its currently significant foreign exchange risks associated with debt/cash flow currency mismatch.

Proceeds of the new notes (Ba2) will be used to finance the purchase of notes in a tender offer launched on May 30, as well as for general corporate purposes.

VimpelCom is tendering for $499,149,000 of outstanding 9 1/8% loan participation notes due April 30, 2018 issued by VIP Finance Ireland Ltd., $650.57 million of outstanding 7.748% loan participation notes due Feb. 2, 2021 issued by VIP Finance Ireland and $1,280,023,000 of outstanding 7.5043% guaranteed notes due March 1, 2022 issued by VimpelCom Holdings BV.

In a possible offering influencing Africa, TiZir Ltd. mandated ABG Sundal Collier ASA and Pareto Securities AS to organize meetings with fixed-income investors ahead of a possible dollar-denominated offering of senior secured bonds, according to a press release.

Proceeds would be used to refinance $275 million of outstanding senior secured bonds due September 2017.

TiZir, headquartered in London, is involved in the production and processing of mineral sands, titanium and iron ore ilmenite, with operations in Norway and Senegal.

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