A Mystery Bond in Venezuela Has Traders Scratching Their Heads

Gasoline Venezuela

Workers at a Petroleos de Venezuela gas station in Caracas.

Photographer: Wilfredo Riera/Bloomberg
  • Investors last week saw prices on 2022 bonds issued by PDVSA
  • State oil company's notes have fallen 6.2% since March 22

Bond investors in Venezuela have made a dispiriting discovery.

Last week, traders started quoting prices on a $3 billion note issued by the nation’s state-owned oil company. While the eight-year securities were first sold in October 2014 under New York law, according to data compiled by Bloomberg, not much else is known. The bonds don’t trade on any U.S. exchange, aren’t rated by any major credit-ratings firm and no term sheet has been made public. 

Concern that new Petroleos de Venezuela securities were being sold to investors has sparked a 6.2 percent drop in its other notes due in 2022. The benchmark bonds due in November 2017 fell 5.4 percent.

Investors are dismayed that the securities represent yet another obligation for the cash-strapped oil-producing nation, which has been hounded by speculation it may default in the coming year. PDVSA, as the company is known, issued the bonds to the central bank, which may look to unload them on the market to generate much-needed revenue. At Monday’s price of 29 cents on the dollar, they’re actually worth less than $1 billion.

“They’re there, but they have never been used in the market,” said Carmelo Haddad, a managing director at Knossos Asset Management in Caracas. “We’ll see them at some stage this year, though maybe not just now when prices are so poor.”

Officials at PDVSA and at the central bank didn’t immediately respond to e-mailed requests for comment on Monday.

The central bank may decide to use the notes to supply Venezuela’s new currency market, known as the DICOM. Central bank data show the government is selling less than 10 percent of the available dollars at the market-based DICOM rate, with more than 90 percent being sold at the official exchange rate of 10 bolivars per dollar.

That suggests there is a shortage of hard currency, said Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc. in New York.

“Just the fear of new supply, and look what happens to pricing,” she said. “We don’t need new bonds that no one wants to buy.”

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