Saudi debt closes 6-11 bps wider after corruption arrests; Venezuela/PDVSA extend losses from Friday’s rout

By Rebecca Melvin

New York, Nov. 6 – Debt from Saudi Arabia, including both sovereign and corporate paper, traded actively on Monday and closed about 6 to 11 basis points wider on average, a market source said.

The move came as investors worried about the implications of the new Saudi crown prince’s weekend roundup of princes, ministers and businessmen in an escalation of detentions that were announced as taking aim at corruption but are being viewed as an effort to consolidate power.

Crown prince Mohammed bin Salman wants to overhaul the kingdom’s economy and free Saudi Arabia from dependence on oil revenue. He is also in charge of the armed forces and deputy prime minister. The detentions included prince al-Waleed bin Talal, one of the richest men in the world.

“There is no doubt that the magnitude and suddenness of the arrests have created some uncertainty among local and foreign investors,” Trieu Pham of MUFG Securities wrote in a note on Monday.

Nearby, Lebanon’s sovereign bonds widened by 40 bps to 90 bps over the weekend and worsened in Monday’s session to 50 bps to 100 bps wider, a source said.

The severe spread widening occurred after Lebanon’s prime minister Saad Hariri announced his resignation, claiming he feared for his life and criticizing Iran and its affiliate Hezbollah for interfering with Arab affairs.

Venezuela and Petroleos de Venezuela SA bonds continued to gap lower on Monday after a violent selloff on Friday on the heels of Venezuelan president Nicolas Maduro’s announcement that he wants to restructure the country’s international debt.

Many bonds were down another 2 or 3 points on Monday, and only one bond in the sovereign curve remains above 40, while only three are in the 30 to 40 range. All the others have sunk into the 20s.

The PDVSA 6% notes due 2026 dropped three points from Friday to 23.

“I’m surprised that the 2026 bond has gone to 23,” a U.S.-based trader said, adding that he thinks fear has seized the market.

“People don’t know what to do with the information that they have. There is no sponsorship from the deals, from the real money and we are drifting down, step by step,” the trader said.

Investors are watching to see if the PDSVSA bonds that were due last week on Nov. 2 will be paid by the deadline on Tuesday. There is no grace period for this bond, which Maduro asserted would be paid ahead of restructuring efforts.

The 2017 PDVSA bonds were not being traded on Monday.

A second trader said that the focus is on coupon payments that were due in October and whether those payments will be made. But “everything is equally underperforming,” both the long and short end of the curve, he said.

Although “not all bonds are equal,” the trader said. The only bond “holding in” was the PDVSA 8˝% notes due 2020, which have collateral tied to U.S.-based Citgo assets. The PDVSA 2020 notes were seen 74 bid, 76 offered on Monday.

Other bonds in play were the Venezuela 11.95% notes due 2031, which were seen at 26.5 bid, 27.5 offered at late afternoon, down from 29 early Monday and down from 31 on Friday.

The three versions of the Venezuela notes due 2018 were all down below 40. The Venezuela 7% notes due 2018 were at 34 bid, 39 offered, and the 13 5/8% version were at 34 bid, 38 offered.

“There are all kinds of theories like there might be some kind of conspiracy and the government is pushing prices down to purchase them. That is why some people are still holding on,” a trader said.

Maduro said Thursday that Venezuela wasn’t going to be able to continue making payments on its debt, blaming the United States and sanctions imposed in August for bringing the country to this point of financial instability.

© 2015 Prospect News.
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