PDVSA Bonds Drop on Mounting Concern About Chavez Succession

Bonds of Petroleos de Venezuela SA, the state oil company, plunged the most in six months amid concern that there will be a succession crisis if President Hugo Chavez is unable to be sworn for a third term on Jan. 10.

PDVSA’s debt due 2017 plunged 1.88 cents to 99.09 cents on the dollar at 4:30 p.m. in New York. The $6.15 billion of securities yield 8.73 percent, data compiled by Bloomberg show. The notes were the most actively traded emerging market corporate bonds today, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Chavez, who was re-elected in October, has remained in Cuba since Dec. 11 as he suffered complications following a fourth surgery related to an undisclosed form of cancer. The socialist president’s political opponents contend that he must return to Venezuela for his Jan. 10 swearing-in ceremony or be declared ineligible to govern. Allies say they are using his illness to plot a coup.

“There’s definitely uncertainty with how things will play out with the looming January inauguration date,” Kathryn Rooney Vera, a strategist at Bulltick Capital Markets in Miami, said in a telephone interview. “There’s concern in the market there will be internal strife with regard to the date.”

PDVSA’s bonds rallied 22.61 cents last year amid speculation a change in leadership would open Venezuela, South America’s top producer, to foreign investment and stem declining output. The country has the world’s largest crude reserves, totaling about 300 billion barrels, according to the BP Statistical Review of World Energy. Output has fallen to about 2.8 million barrels a day from 3.1 million barrels a day when Chavez took office in 1999. Oil accounts for 95 percent of exports.

Yields on the country’s benchmark 2027 bonds jumped 29 basis points, or 0.29 percentage points, today to 9.06 percent, Bloomberg data show.