London hedge funds, a private bank in Monaco and Uruguayan millionaires are among the bargain hunters bidding on Venezuelan bonds as some investors dump the debt to mirror its reduced index weight.
Funds from Europe and Latin America are swooping in amid rules that prevent Americans from buying the notes, according to brokers involved in the trades who asked not to be identified because they’re prohibited from discussing clients’ activity. With demand limited to overseas entities, prices for the defaulted debt have dropped to about 15 cents on the dollar from double that just months ago.
While the market for debt from the sovereign and state oil company Petroleos de Venezuela had been all-but-dead the past few months as investors waited to see how the country’s political crisis played out, trading has surged in recent weeks as JPMorgan Chase & Co. signaled it would reduce the nation’s weight in its widely followed bond indexes to zero. PDVSA bonds are set for their busiest month of trading since April, according to Trace, Finra’s price reporting system.
JPMorgan’s decision has forced some funds with mandates to track the benchmark indexes to sell to offshore firms because sanctions by the Trump administration prohibit U.S. investors from buying. Buyers are speculating the securities will be worth far more than where they currently trade if and when a new government takes over and formulates a restructuring plan.
“I have been getting calls from around the world looking to buy Venezuela and PDVSA bonds at these prices,” said Russ Dallen, managing partner at the Miami-based brokerage Caracas Capital.
Back in March, when most bonds were still quoted around 30 cents on the dollar, bankers from Wall Street to Caracas scoffed at bids from Dubai-based Cravos Investments Limited and Taunus Capital Management AG in Frankfurt for as low as 13 cents. But after additional sanctions, an attempted uprising and political negotiations failed to bring Nicolas Maduro’s government to an end, many of the notes are now changing hands at those levels.
Brokers involved in the trades asked not to name their clients so as not to damage future business with them.
Regulatory filings offer additional clues that U.S. investors have unloaded some Venezuelan debt. Funds managed by Goldman Sachs Group Inc., Vanguard Group Inc., Lazard Ltd. and Frank Russell Co. were among those to trim their holdings in recent months, according to data compiled by Bloomberg. Meanwhile, buyers include Copenhagen-based BankInvest Group, Raiffeisen Kapitalanlage-GmbH in Vienna and Meriden Group’s Andorra-registered Russian Combined Fund.
With all but one of Venezuela’s bonds in default, bondholders probably won’t cash in anytime soon. Therefore, the bet is that an arduous restructuring process, which some investors have warned could be uglier than Argentina’s 15-year court battle, will eventually result in a pay day when the nation’s oil production recovers to past levels.
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, ;David Papadopoulos at papadopoulos@bloomberg.net, Brendan Walsh
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