Venezuela Bonds Rally as PDVSA Swap Bets Ease Default Concern
- Nation to offer bond swap proposal for PDVSA 2017: PetroGuia
- November 2017 bonds end five days of declines on report
Venezuela bonds halted a five-day slide as speculation on a swap offer from state oil gianteased concern over a near-term debt default.
The nation’s $4 billion benchmark bonds due in 2027 rose 1.04 cents to 48.04 cents per dollar at 10:58 a.m. in New York after local media reported that oil minister, who is also president of the state-owned company, cited advanced talks to refinance PDVSA’s debt coming due in the next 18 months. The company’s notes due in November 2017 rose 1.85 cents to 75.85 cents per dollar.
PDVSA’s bonds have rallied this year, and swaps traders have reduced wagers on a default over the next 12 months, amid speculation that a recovery in oil prices, financial maneuvers and support from China will allow the company and Venezuela’s government to keep servicing its debt for the time being. Still, the probability of a default in the next five years is above 90 percent, according to credit-default swaps.
“If that happens, it’s clearly positive because it gives them more freedom in the short-term,” said, head of emerging-markets at Axa Investment Managers in London. “It doesn’t change the long-term problem of a dysfunctional economy and incompetent leadership.”
PDVSA’s plan to reduce its short-term debt burden will be announced soon, Del Pino said at an industry event, according to Caracas-based energy news website Petroguia. Bankers at Rothschild & Co. last week held a conference call with investors in PDVSA debt to discuss a plan to swap bonds due in October this year as well as the 2017 debt for a basket of debt due in 2024 and beyond, according to people with knowledge of the matter.
A spokesman for Del Pino said he couldn’t confirm Petroguia’s information on the swap offer, and said he would contact the minister on the matter.
Credit-default swap traders on Tuesday were pricing in a 48 percent probability of Venezuela defaulting by June 20 next year. Back in February, after oil prices fell to a 13-year low, they saw an 83 percent probability it would default by the end of December.
The price of oil has since risen 60 percent.
“The market consensus is that the current policy path of depleting external assets and increased financing sources to service debts is unsustainable,” saidat Knossos Asset Management in Caracas. “Lots of people thought that 2016 was the year of reckoning, but market consensus now has pushed the doomsday scenario to 2017.”
--With assistance from, and .