Venezuela bonds rally ahead of Monday creditors meeting

CARACAS (Reuters) - Venezuelan debt prices surged on Friday as efforts by President Nicolas Maduro’s government to keep current on its obligations fueled optimism ahead of a Caracas meeting aimed at starting to restructure the country’s $60 billion in bonds.

The cash-strapped OPEC nation’s move last week to summon bondholders to debt talks roiled investors, who remain concerned about the government’s ability to restructure amid U.S. sanctions that effectively bar U.S. banks from rolling over the country’s debt into new bonds.

But signs that a delayed $1.2 billion payment due on a bond from state oil company PDVSA [PDVSA.UL] was finally being made, plus state electric utility Corpoelec’s declaration that it had made a key coupon payment seemed to bolster investor confidence in the country’s ability to pay - at least for now.

Brokerage Stifel Nicolaus & Co Inc said in a research note that the utility’s $28 million payment had raised the chances of bondholders getting paid other upcoming bond coupons, while adding: “we think how Monday’s meeting goes will be a more important determinant of whether these coupons will be paid.”

Earlier, Wilmington Trust issued a notice of default for the $650 million bond issued by Electricidad de Caracas, a company known as Corpoelec since its 2007 nationalization.

Corpoelec via Twitter said it had in fact made the coupon payment on Nov. 8 but acknowledged “operational changes” had affected transactions, a nod to U.S. sanctions that have led banks to be more cautious about Venezuelan dealings.

Wilmington Trust did not answer calls seeking comment.

Investors have been on edge since Maduro last week made a confused announcement that he would restructure future debt payments but continue to pay.

Venezuela's 2022 bond was up 4.950 points to bid 26.950 points, while PDVSA's 2020 VE151299784= bond was up 5.500 points to bid 78.500.


Market optimism was heavily driven by news that settlement agent DTC has told creditors that it has received the principal payment on the PDVSA 2017N bond, which matured last week.

The full payment of $1.169 billion, which includes $1.121 billion in principal and $47 million in interest, was due on Nov. 2. Bondholders contacted on Friday said they still had not received the funds.

Despite Friday’s optimism, prices for credit default swaps - a form of insurance against default known as CDS - have soared in the last week and now reflect a PDVSA default being almost imminent.

A committee of derivatives industry group ISDA will reconvene on Monday to discuss whether PDVSA has triggered a credit event through the late payment of the 2017N, ISDA said on its website on Friday. An affirmative decision would trigger payment on credit default swaps.

Prices have jumped most for the shortest-dated CDS contracts - with the 6-month contract PDVT6MUSAC=MP price leaping more than 10-fold at one point.

The default probability associated with PDVSA’s 6-month contract was 99.86 percent as of Thursday evening, according to data provider Markit, up from around 57 percent in early November.

Doubts remain about how widespread investor participation in Monday’s meeting will be.

U.S.-based creditors are not prohibited from attending the meetings, but are barred from dealings with officials like Vice President Tareck El Aissami, designated by Maduro to lead the talks, even though he is under sanction for alleged drug trafficking.

Venezuela has promised investors that he and other officials under U.S. sanction will not participate in the debt talks, but multiple investors have told Reuters they expect to sit out the Monday talks.

Separately, Venezuela will sign a debt restructuring deal with Russia next week, a source told Reuters on Friday.

Additional reporting by Eyanir Chinea in Caracas, Davide Scigliuzzo, Paul Kilby and Dan Burns in New York; Editing by Andrew Cawthorne, Rosalba O’Brien and Christian Plumb