Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Venezuelan government bond prices soared on Thursday after the U.S. government eased sanctions that had barred American investors from trading them, giving some hedge funds immediate big profits.
The price of Venezuela’s dollar dollar bond due in 2027 rose more than 70 percent to 19 cents on the dollar, according to Bloomberg data.
The gains, which were also reflected in other Venezuelan debt, came after the U.S. Treasury Department late Wednesday lifted a ban on secondary trading of certain government bonds as well as the debt of state oil company Petróleos de Venezuela (PDVSA), part of a broader easing of sanctions against Caracas.
The country’s bonds have traded at a small fraction of their face value for years, after Venezuela defaulted in 2017 and was subsequently removed from widely used indexes, and after the Trump-era trading ban.
Some investors said the easing of sanctions could pave the way for an eventual restructuring of Caracas’ debt. It could also allow Wall Street heavyweights to enter the market hoping to make big gains on bonds that are still trading at deeply distressed levels.
“We believe this is the start of a multi-stage process. . . “We want to reintegrate Venezuela into the financial mainstream,” said Nick Lawson, chief executive of London-based brokerage Ocean Wall and a Venezuelan bondholder since 2021.
Among the hedge funds that benefited from Thursday’s rally was Lee Robinson’s Altana Wealth, which launched a fund to buy Venezuelan debt three years ago. The company invested about $75 million in government and PDVSA bonds with a total face value of nearly $500 million at the end of September, Robinson told the Financial Times.
“There was a big push from both sides [to improve relations] for over two years,” he said. “The Middle East and the Russian attack on Ukraine may have increased the urgency [the] USA and Allies.”
The Biden administration said it would partially lift sanctions after resuming talks between the oil-rich Latin American government and its U.S.-backed opposition faction. After Russia’s large-scale invasion of Ukraine in 2022, which, along with a Saudi Arabia-led supply shortage, caused oil prices to rise, the US has been looking for ways to increase global oil supplies and drive down prices.
The new agreement stipulates that certain sanctions will be lifted for six months, with the extension depending on the country’s progress towards democratic elections. A ban on U.S. investors buying freshly issued Venezuelan debt remains in place.
Graham Stock, a strategist at RBC BlueBay Asset Management, said sanctions on primary issuances would need to be lifted before the country’s debt could be restructured, a process that typically involves swapping defaulted bonds for newly issued bonds.
After Wednesday’s announcement, U.S. Secretary of State Antony Blinken said Washington expects the Venezuelan government to begin releasing political prisoners and wrongfully imprisoned U.S. citizens. Following the US announcement, five prisoners were released overnight.
“It is good news that the opposition and government can agree on a path to free and fair elections under international observation, but full normalization of the oil industry and financial access to capital markets is likely to be a long road, with many still on it “There are more hurdles to overcome,” said Armando Armenta, emerging markets strategist at AllianceBernstein.
“What matters for the bonds is whether the lifting of the bond trading ban can lead to a successful restructuring of Venezuela and PDVSA’s debt,” he said.
Source : www.ft.com