Investors expect PDVSA to make bond payments

The corporate logo of the state oil company PDVSA is seen at a gas station in Caracas

By Paul Kilby

NEW YORK (IFR) – Bonds issued by PDVSA were largely drifting on Tuesday as investors showed scant concern over some US$539m in debt payments owed this week by the embattled Venezuelan oil company.

Market participants are reporting little if any dramatic price movements on the company’s bonds even as investors await news of a US$135m payment due Monday on the 6% 2026s.

PDVSA also owes US$150m on the 6% 2024s today, and a combined US$254m on the 9% 2021s and 9.75% 2035s on Wednesday.

“The market was focused yesterday on the rumor that people weren’t seeing cash in their accounts, but it is our understanding that payments are being made by PDVSA,” said Jorge Piedrahita, CEO of brokerage Torino Capital.

The PDVSA 2024s were trading early Tuesday afternoon at 39.27, down a touch from 39.45 seen on Monday, while the other bonds with payments due this week have barely traded, according to MarketAxess.

“If investors thought a default was coming it would have been reflected in bonds prices,” said Piedrahita. “It usually takes payments a day or two to reflect in customer accounts.

With the state-controlled entity covering a bulky US$2.1bn amortization in April, markets participants see little reason why the government would fail to come through on this occasion.

Last year, the borrower did use the grace period on the very same bonds. But bondholders largely put such hold-ups down to glitches in the payment system or simply mismanagement that has come to characterize a government with little market savvy.

“If we have delays on those bonds, it will look like an operational (problem),” said Siobhan Morden, head of Latin America fixed-income strategy at Nomura.

“There is less concern about payment stress when PDVSA made the last payment without a decline in reserves.”

This comes as President Nicolas Maduro faces calls for his resignation amid daily protests in reaction to the country’s severe economic crisis.

Several analysts believe that a default or restructuring scenario is all but inevitable over the next few years, as the country’s political dynamics change or the government runs out of funding options.

For now, some investors are betting on the Maduro administration’s strong willingness to pay as it seeks to remain in power.

“If they were to stop paying now, the narrative would change so fast and this wouldn’t help Maduro,” said one investor.

(Reporting By Paul Kilby; Editing by Jack Doran)