Venezuela, PDVSA improve before meeting that leaves some fearing worst; Ezdan bonds drop

By Rebecca Melvin

New York, Nov. 13 – Venezuela and Petroleos de Venezuela SA bond prices improved somewhat on Monday ahead of a bondholder meeting that provided little to no clarity on how Venezuela hopes to restructure or refinance its debt.

U.S. investors, whose participation had been in question due to U.S. government sanctions that prohibit business dealings with the government of president Nicolas Maduro, were allowed to participate in the meeting to listen but not to negotiate, a New York-based trader said.

Heading Venezuela’s restructuring team is vice president Tareck El Aissami, who is among those sanctioned due to his alleged involvement in drug trafficking and corruption.

The bondholders that attended the meeting were for the most part local investors, a second trader said.

“Officials gave no description of what they need. It was mostly a political meeting and there was no clarity on what they are asking,” the first trader said.

Market focus has now shifted to a ruling expected on Tuesday by the International Swaps and Derivatives Association, a trader said after the market close.

“I expect that ‘failure to pay’ will be declared, and hence the bonds would enter into default territory,” the trader said.

“I’m afraid this is it: game over. Venezuela/PDVSA are already past the 30-day grace period for Elecar, PDVSA 27s, 37s, 19s and Venezuela 24s,” the trader said.

Elecar is actually Corporacion Electrica Nacional (Corpoelec), which defaulted last week on its $650 million of 8½% notes due 2018 by failing to pay within the grace period interest due Oct. 10. The notes were originally issued by Elecar and assumed by Corpoelec in 2012 after a merger.

“Venezuela is just buying time,” a trader said, “I just heard several law firms are being hired by institutional investors. People are preparing for the worst.”

Meanwhile, among bonds trading on Monday PDVSA’s 2022 notes were quoted up a point or so at 35.6 bid, 36.6 offered; the Venezuela 2022 notes were quoted at 30½ bid, 31½ offered; and the Venezuela 2031 notes were quoted at 28 bid, 29 offered.

Most bonds were better by about 1½ points, a trader said.

Last Thursday, the U.S. Treasury Department sanctioned 10 more current and former Venezuelan government officials, accusing the officials of subverting democracy, undermining electoral processes, media censorship and/or corruption in government-administered food programs.

“The U.S. will not stand aside while the Maduro regime continues to destroy democratic order and prosperity in Venezuela,” Treasury Secretary Steven Mnuchin said Thursday. “We will maintain our vigorous efforts to sanction Venezuelan government officials who are complicit in Maduro’s attempts to undermine democracy, violate human rights, inhibit the freedom of expression or peaceful assembly, or engage in public corruption, unless they break from Maduro’s dictatorial regime.”

Elsewhere, Qatar’s Ezdan Holding Group 2021 and 2022 notes saw dramatic spread widening in the early going on Monday as listed shares fell 5% after news that the real estate developer is restructuring its operations.

Also on Monday, S&P downgraded its ratings on Ezdan, citing weakening of Ezdan’s financial risk profile due to the impact of a trade blockade led by Saudi Arabia and a number of neighboring countries against Qatar since June.

The Ezdan 4 3/8% notes due 2021 were seen at 88 bid, 90 offered with spreads going from 65 basis points wider to 175 bps wider, according to a London-based firm.

The Ezdan 4 7/8% notes due 2022 were quoted at 88.45 bid, 89.90 offered, with spreads widening to 200 bps from 75 bps at the start of Monday’s session.

On Friday, the bonds were marked by the firm at 94½ bid, 95¼ offered and 94 bid, 95½ offered, respectively.

Ezdan has cut 220 jobs, or almost 15% of its work force, as part of the restructuring plan, according to a report. Ezdan shares have dropped 48% this year, much of it on the heels of Ezdan shareholders’ approval in May of a plan to go private.

S&P lowered its long-term corporate credit rating to BB from BBB- and its rating on the company’s senior unsecured sukuk to BB- from BBB-.

S&P also said that Ezdan has tight headroom under its covenanted debt-service coverage ratio, which has led to the reassessment of its liquidity to less-than-adequate.

The Saudi led group of countries that has cut diplomatic, trade and transportation ties with Qatar includes United Arab Emirates, Bahrain, Egypt, Libya and Yemen.

S&P said that Qatar’s operating performance and financial ratios are expected to continue to weaken in the next 12 to 24 months, especially if the blockade is tightened or prolonged.

© 2015 Prospect News.
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