Small funds and investors outside the United States are looking to increase their exposure to Venezuelan bonds in the face of expectations of a debt renegotiation or legal actions linked to an imminent expiration of payment rights, investors and four sources from the financial sector said.
Many of the bonds are trading at pennies on the dollar after Venezuela defaulted on bondholders in October 2017, compounded by Washington sanctions that bar any American from dealing in Venezuelan debt.
Investor interest has grown after the review of the license of the US oil company Chevron and the revaluation of the refiner Citgo Petroleum Corp, a subsidiary of the state PDVSA in the United States, Venezuela’s most important asset abroad.
Also key is the upcoming October deadline, after which some Venezuelan debt holders could lose their right to petition the courts to order payment.
Some of the funds buy debt for their clients in Europe, the sources said. Among the most sought-after bonds is the PDVSA 2020, whose guarantee is half of Citgo shares.
Funds such as Altana Credit Opportunities Fund, based in London; Copernicus Recovery Fund, in the Cayman Islands; Canaima Capital Lux, in Luxembourg, and Auriga Global Investors, a brokerage house in Madrid, have been buying bonds from holders who have not collected principal and interest for almost six years.
“The vast majority of bondholders are creditors in favor of a consensual restructuring of Venezuela’s debt. They would only act legally if there was no extension of the prescription,” said Francesco Marani, head of negotiation at Auriga Global Investors. “Creditors need more clarity from the Joe Biden administration.”
Auriga’s clients have positions in Venezuelan debt of over $100 million, Marani said.
“More and more people contribute money to our fund on a monthly basis the more optimistic they are on the time scale,” said Lee Robinson, president of the Altana Credit Opportunities Fund.
“You want to be long Venezuela and PDVSA. Even on a 10-year outlook, it’s a great trade. The recovery will be higher than almost any other distressed sovereign available right now,” Robinson added.
Altana sued in 2020 but has continued to buy bonds from Venezuela and PDVSA, of which it owns more than 1% of the total outstanding debt, about $500 million at face value. “We filed our claims in US courts, and none of the other European funds have done so yet,” Robinson added.
Copernicus Capital Partners, along with local firm NTN Consultores, have a vehicle, the Copernicus Recovery Fund, which also has $500 million in bonds at par value and aims to take on more debt. Nor does it rule out legal action.
“The fund is focused on Venezuelan debt,” said Jorge Piedrahita, an adviser to Copernicus and a manager at consultancy Gear Capital Partners. “Bonds are purchased and holders are given shares in the fund,” he added.
Luxembourg-based Canaima Capital Lux launched an investment vehicle in November to pool European 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 lawsuits in United States courts for defaults and a trial for the nullity of the PDVSA 2020 bonds is currently in process in a New York court.
Negotiations close?
The president of PDVSA’s ad hoc board, Horacio Medina, said in May that Citgo cannot pay all debts, but is willing to negotiate some payments.
Citgo’s valuation is around $13 billion. The refiner still has protection from the US Treasury Department for three months.
US investors controlled between 75 and 80% of sovereign and PDVSA debt, according to a report by the Chatham House think tank, but that figure has dropped to between 50 and 55% in five years because of sanctions.
“Between 15 and 20 billion dollars of debt held by (investors from) the United States has migrated to other holders,” he added.
In March, President Nicolás Maduro proposed suspending the statute of limitations on the bonds for five years or until the sanctions are lifted. The Committee of Creditors of Venezuela in the United States asked the opposition to support the proposal and Washington to support its validity.
The opposition parliament received a license from the Treasury Department in May that allows entities it designates to carry out debt settlement agreements from the government or PDVSA. But it has not yet given an answer to the creditors.
Several investors consulted indicated that in an eventual debt renegotiation they could accept shares in the oil business or shares of state companies in exchange for bond payments.
“Many (investors) are still lobbying in the United States for the possibility of negotiating with Venezuelan bonds,” added one of the sources consulted.
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