Venezuela ‘bond jitters’ grow after Goldman deal

Bloomberg

The Venezuelan debt that Goldman Sachs Group Inc. bought last month may be known as “hunger bonds” to many in the international community, but they’re earning a different moniker on Wall Street: repudiation bonds.
In the days since that controversial transaction, numerous investors have been approached by brokers putting out initial feelers to gauge their interest in the notes, and almost without exception, they say they’re leery about securities that Venezuela’s opposition calls illegitimate and says won’t be repaid if it takes control of the government.
That they are so quick to bring up this concern marks a major victory for the band of lawmakers spearheaded by National Assembly President Julio Borges, which after being stripped of power by President Nicolas Maduro last year are seeking to wield influence in one of the only ways they can. The politicians say they’re trying to keep the government from selling debt at pennies on the dollar and raising unapproved funds that are used to buy weapons to repress protesters. (Outside observers say the initiative also more broadly seeks to deepen the government’s cash crunch and expedite its collapse.)
The risk of repudiation seems evident in the price Goldman Sachs Asset Management reportedly paid for the $2.8 billion of bonds from the state oil company PDVSA due in 2022 — just 31 cents on the dollar, according to the Wall Street Journal. Venezuelan officials seeking cash knew they had to offer a discount because of the risk a future administration could disavow the deal, according to Francisco Rodriguez, the chief economist at Torino Capital.
“I do think that one has to convey to clients that there is a higher repudiation risk for these bonds than for other PDVSA bonds,” he said in an interview. Investors’ willingness to lend is critical for Maduro as he faces daily protests calling for his departure amid chronic shortages of food, medicine and other basic goods. Sixty-seven people have died so far in the clashes and scores more have been injured or thrown in jail. To get the dollars needed to make interest payments and fund import purchases, Maduro has put the country ever more in debt while raising relatively little cash. Lawmakers are concerned he could seek to sell an additional $5 billion of securities held by a state-owned bank or try to monetize the country’s $7.6 billion of gold reserves.In the latest sign of financial stress in Venezuela, the government failed to make a nearly $1 billion loan payment to its ally Russia for previous arms purchases.