When Chávez Seizes, Bondholders Profit

Venezuelan President Hugo Chávez says capitalism is “ruining the world.” His actions tell a different story.

Dollar-denominated bonds issued by FertiNitro, a joint venture operated by Koch Industries and state-run chemical company Pequiven, were trading at 68¢ on the dollar the day before Chávez nationalized the company in October 2010. Bondholders have argued that the seizure triggered a clause that requires the government to redeem the bonds for more than their face value. On Nov. 22, the government offered to buy back the bonds for $1.05 on the dollar, or 54 percent more than they were trading for before the nationalization. “For all the noise associated with Chávez, he’s been very good to bondholders,” says Raymond Zucaro, who helps manage and advise on about $260 million of emerging market corporate debt, including FertiNitro bonds, at SW Asset Management in Newport Beach, Calif. “He’s never defaulted on any fixed-income obligations.” Pequiven says that more than 99 percent of its bondholders have agreed to sell their securities in response to the government’s offer.