Venezuela's Bonds on the Rise: A Reflection of Negotiations

According to a Financial Times (FT) article published this Monday, the fact that the prices of Venezuelan sovereign bonds have risen in recent weeks is a sign that investors speculate that the government of President Nicolás Maduro is “nearing a diplomatic breakthrough that could lead to a softening of US sanctions.”

The price of the debt has declined sharply since Donald Trump’s administration imposed sanctions on Venezuelan bonds and PDVSA in 2017.

However, lately, there has been a rebound in the value of this item due to the estimates of holders, who expect a positive return with the increase in prices of Venezuelan government debt.

In October 2022, Bloomberg reported that funds from different parts of the world are willing to take the risk of purchasing defaulted bonds sold by countries under sanctions—which cuts US investors out of the market—including Venezuelan bonds.

Bloomberg data published last August revealed that the bonds issued by Petróleos de Venezuela, S.A. (PDVSA) maturing in 2020 skyrocketed 160% in the last year.

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According to one of the stakeholders cited by the FT article, published on September 11, the Biden administration is interested in reaching out to “Maduro because this would solve two issues related to President Biden’s re-election: The migration of Venezuelans to the US and Russian-Saudi attempts to squeeze the oil market.”

Bonds on the rise
Since a US government delegation led by Juan González, Biden’s main Latin American advisor, arrived in Caracas in March 2022 to begin high-level talks with President Maduro, the United States has not shown any intention to cease its economic warfare and “sanctions regime” against Venezuela.

Rather, it has opted to issue licenses to allow select US and European energy companies to operate in Venezuela and market their products with the aim of continuing to maintain control of commercial, financial, and productive flows in the oil and gas sector of Venezuela. .

FT points out that investors have their own interests in a successful negotiation between the administrations of Nicolás Maduro and Biden, although they understand that it “could fall apart at any time.”

“Although debt issued by Venezuela and its state oil company PDVSA is not currently paying regular interest, some buyers are keen to snap it up as a claim in an eventual restructuring of the country’s bonds,” wrote FT. “Although such a prospect remains distant,” the outlet added, “even a relaxation of the US trading ban would likely result in large price increases, they argue, given it would open up the bonds to demand from a much wider group of investors.”

In this way, the hope of the holders is that some agreement will be reached to be able to collect the gains from the Venezuelan bond market after a process of restructuring the obligations, which is only possible if some measure is issued that allows negotiation between the bond holders and the Venezuelan state.

The British media cited “a source close to the talks” claiming that “positive news could arrive in the next week or two.” The source alleges that this news would “consist of a series of steps taken by the US and Venezuela towards normalizing relations, rather than a single announcement.”

This would be in line with the actions that the White House has taken regarding Venezuela’s administration, since there has not been any large-scale measure that indicates the “normalization of relations”, although there is a negotiation channel between both governments that has led, among other things, to the issuance of licenses as a sign of supposed relief of the blockade.

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A possible turning point
The bond-holder sector expresses, through FT, a criticism of the White House’s sanctions strategy, which is added to the lack of opportunities to collect interest and debt payments:

“Investors have complained that the effect of bond trade sanctions has been to force US funds to sell their Venezuelan holdings to buyers whose operations are less transparent, for example, those located in the Middle East or Turkey [sic],” wrote FT.

These bonds end up in unfriendly jurisdictions,” a hedge fund investor told FT. “The US is giving away its leverage and its ability to be a player in the restructuring of Venezuelan debt.”

Thus, the holders observe that the sanctions have had a boomerang effect and a negative impact on the corporate interests of their own country with respect to Venezuela. Forbes, taking this into account, affirms that the sanctions on Venezuelan bonds are counterproductive.

Furthermore, the essential energy factor must be factored into the equation, since Washington has had to resort to Venezuelan oil to try to balance the global energy market in its favor, after blocking Russian products to the North Atlantic axis. For this reason, the European Union is also interested in changing the sanctions scheme.

“Those who have followed the US-Venezuela talks closely say there is no guarantee of an agreement.,” concludes the FT, citing another person close to the talks to argue that time is running out for successful negotiation to occur: “If the primaries come and go and there’s no deal, then there isn’t going to be a deal.”

The primaries of Venezuela’s Democratic Unitary Platform are scheduled for October 22. It seems that, according to the FT, investors interested in lifting sanctions against Venezuela have this date as a turning point for their agenda and are pressuring the White House to take action in that regard.

This report, which can be interpreted as part of a public relations campaign by one of the financial sectors interested in the Venezuelan debt, is published in the context of President Nicolás Maduro’s tour of the People’s Republic of China, in which bilateral cooperation agreements were discussed in strategic sectors of economy, finance, trade and energy, among others.

(Misión Verdad)

Translation: Orinoco Tribune

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