Venezuela's quasi-sovereign PdVSA said Monday that it concluded a deal to swap almost $3 billion in upcoming bond payments for longer maturities, a move that will likely save it from defaulting this year. Those bills were due be end of December. PdVSA is Venezuela's state-owned oil company and is one of the biggest, high risk bond gambles in the Americas.
Prices for PdVSA’S April 2017 bonds rose 1.3% to 80.55. The PdVSA 2017s settled around 1.5% higher to 83.90 cents. These were the two issues involved in the restructuring deal. For a debt that deep in distressed, and with a massive political and economic crisis to boot, a mere 20% discount is bullish.
The WSJ reported yesterday that PdVSA got the required minimum participation rate from investors at last minute after having to extend the deadline three times. The company will swap $2.8 billion worth of bonds maturing in 2017, or about 52% of the tendered amount, for $3.4 billion bonds due in 2020, the company said in a statement.
Venezuela’s sovereign bonds, which closely track PdVSA, are the best performers in emerging markets this year, giving investors a 46% year-to-date ending Friday.
The country is home to the worst political crisis in the Americas today. President Nicolas Maduro refused a referendum vote calling for early elections. The opposition parties, which still account for a minority in the Socialist Party controlled government, called on the courts to abide by the law this week and uphold a referendum vote. The vote is sure to pass, putting Maduro up for early election next year. The economy is in the gutter and inflation is over 700% over the last 12 months.
Maduro's term is up in 2018. This has made the longer dated bonds more attractive to investors who were more willing to bet on Maduro surviving a recall but not re-election.
The longer maturities in this new restructuring offer carries the political risk of Maduro canceling elections in 2018 and seizing autocratic control of the economy.
"We assume the carry trade continues to dominate (PdVSA bond demand) and reinforces the pull to par on the shortest maturity 5.25% PdVSA’ 2017," says Siobhan Morden, a Latin America fixed income strategist with Nomura in New York. She says PdVSA's willingness to pay may not compensate for the increasing cash flow stress. "This reinforces an investment strategy that prioritizes the higher coupon bonds of the PdVSA’22 and PdVSA’35 bonds," Morden said in a note to clients Tuesday morning.
