© Reuters. A man counts Venezuelan bolivar notes in downtown Caracas, Venezuela January 9, 2018. REUTERS/Marco Bello/File Photo
Written by Mayla Armas, Corina Ponce, and Rodrigo Campos
CARACAS/MADRID/NEW YORK (Reuters) – Small funds and investors outside the United States are looking to increase their exposure to Venezuelan bonds, with the expectation of debt renegotiation or legal action linked to the imminent expiry of repayment rights, investors and four. Sources in the financial sector said.
Many bonds are trading at pennies on the dollar after defaults in 2017, as well as 2018 sanctions imposed by Washington that prevented any Americans from trading Venezuelan debt.
Investor interest grew after the US government’s permit to the oil company was renewed chevron (NYSE:) to operate in Venezuela and Washington’s decision not to prevent a possible seizure by creditors of shares in Venezuela’s most important offshore asset, the oil refiner Citgo Petroleum Corp.
Also key is the upcoming October deadline after which some holders of Venezuelan government debt could lose their right to ask the courts for repayment.
The sources said that some funds are buying debts for their clients in Europe. Among the most requested bonds is PDVSA 2020, whose guarantee is half of Citgo shares.
funds such as the London-based Altana Credit Opportunities Fund; the Copernicus Recovery Fund in the Cayman Islands; Canaima Capital Lux, in Luxembourg; And Auriga Global Investors, a Madrid-based brokerage, has been buying bonds from holders who have not accumulated principal and interest in nearly six years.
“The vast majority of bondholders are creditors in favor of a consensual restructuring of Venezuela’s debt. They will only act legally if there is no extension of the prescription,” said Francesco Marani, Head of Negotiations at Auriga Global Investors. Creditors need more clarity from the Biden administration.
Marani said Auriga’s clients had positions in more than $100 million in Venezuelan debt.
Although these funds’ purchases represent a small part of the more than $60 billion in outstanding bonds, they are listed at pennies on the dollar and there are hopes of big gains.
Buyers
“More and more people are investing money in our fund each month, and the more optimistic they are over the time scale,” said Lee Robinson, CIO of the Altana Credit Opportunities Fund.
Robinson added, “You want to be long in Venezuela and PDVSA. Even on a 10-year perspective, it’s a great trade. The recovery will be much higher than any other struggling sovereign that’s out there right now.”
Other governed monarchs include Ukraine, Ghana, and El Salvador, among others.
Altana filed for repayment claims in 2020 and has continued to buy Venezuelan bonds and PDVSA, which it said holds more than 1% of all outstanding debt, more than $500 million in face value.
“We have filed our claims in the US courts and none of the other European funds have done so yet,” Robinson added.
The Copernicus Recovery Fund, which is managed by Copernicus Capital Partners and Venezuela’s NTN Consultores, said it holds $500 million in bonds at par and is looking to acquire more.
“The fund is focused on Venezuelan debt,” said Jorge Piedrahita, Copernicus advisor and director of advisory firm Gear Capital Partners. Bonds are purchased and holders are given shares in the fund.
Luxembourg-based Canaima Fund Lux in November launched an investment vehicle to pool European equity holders ahead of possible legal action against the government. The fund did not respond to requests for comment.
In addition to Altana, six other funds have filed claims in US courts for non-payment, and a PDVSA 2020 bond annulment trial is currently underway in New York.
Negotiation night?
PDVSA’s ad hoc board chair, Horacio Medina, said in May that Citgo can’t pay all of its debts, but is willing to negotiate some payments.
Citgo could be worth up to $13 billion.
US investors used to control between 75% and 80% of sovereign debt and PDVSA debt, according to a May report by Chatham House think tank, but that number has shrunk to between 50% and 55% over five years because of the sanctions.
“Between $15 billion and $20 billion of debt owed by (investors) of the United States migrated to other holders,” it said.
Venezuela’s dissenting legislature – which the US recognizes as the last democratic body – is authorized by the US Treasury Department to carry out debt settlements with the government and PDVSA.
A creditor group has asked the opposition to support a government proposal to suspend the statute of limitations on paying off defaulted papers, but the opposition has yet to respond.
If the debt is eventually renegotiated, several investors said they could accept stakes in oil or shares in state companies in return for payments.
“Many (investors) are still pressing in the United States for the possibility of negotiating with Venezuelan bonds,” one of the sources added.