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Bondholders lobby US government to soften Venezuela sanctions

Creditor group says restrictions on trading could be forcing bonds into ‘rogue’ hands

  • Business Day (Nigeria)
  • 16 Jul 2019

US sanctions on the trading of Venezuelan debt could be forcing bonds into “rogue” foreign hands, according to a group of bondholders that is urging the government to soften its stance.

Several investors in Venezuela’s creditor committee — which holds roughly $8bn of the country’s debts — are lobbying the Treasury department to address what some call an “ill-advised” trading ban, in light of Jpmorgan’s decision this month to all but remove Venezuelan debt from its widely followed emerging market bond benchmarks.

The move is likely to precipitate forced selling — especially by passive US funds that simply try to track an index — at a time when the sanctions bar US institutions from doing business in Venezuelan securities with other US entities. Should investors want or need to wind down their positions, they can only sell to non-us buyers — often at a steep discount.

The sanctions are “having the exact opposite effect as . . . intended,” said Mike Conelius, a portfolio manager at T Rowe Price — one of the country’s largest bondholders alongside Fidelity, Blackrock, Pimco and Goldman Sachs Asset Management.

“The policy is hurting American investors and unknown, potentially rogue foreign investors are profiteering from the extremely distressed prices caused by forced selling,” he argued.

The trading ban was imposed during the US government shutdown in January, but concerns among bondholders have intensified in recent weeks. Since the end of June, the once-frozen market for Venezuelan debt has come back to life after buyers snapped up an estimated $300m to $400m worth of bonds at knockdown prices.

The trades, which some money managers speculate originated in Spain and the Middle East, were reported to a price-dissemination system run by the Financial Industry Regulatory Authority, the industry’s self-regulatory body, triggering markdowns and large paper losses for holders. Certain maturities of Venezuela’s sovereign bonds now fetch below 20 cents on the dollar, and some instruments issued by PDVSA, the state-owned oil company, are trading even lower.

“This was a sophisticated non-us purchaser seeking to create additional selling pressure right around the same time that many investors would have to sell because of the Jpmorgan decision,” said Hans Humes, chief executive officer of New York-based Greylock Capital, a bondholder. “That type of buyer can really mess up a restructuring process.”

According to multiple people familiar with the matter, the Treasury department justified the trading ban on the grounds that officials in the Venezuelan government led by President Nicolás Maduro were believed to hold a chunk of the roughly $62bn worth of outstanding bonds — the majority of which are in default. Restricting trading would therefore prevent regime insiders from generating cash at the same time as the White House was tightening the screws on Venezuela’s all-important oil industry.

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