PDVSA Bondholders Jump Ship From Shortest Bond to Secured Notes

  • Investors losing faith Venezuela oil company will make payment
  • Bonds due 2020 are secured by a 51% stake in U.S. unit Citgo

Venezuela’s state-run oil producer PDVSA has a lot of debt to pay in the coming weeks -- about $3.5 billion worth of interest and principal. With no way of knowing the company’s real cash position or how it will make the payments, investors can only cling to reassurances from President Nicolas Maduro that they’ll get their money.

Some traders are trying to minimize any downside. Creditors are moving out of the unsecured PDVSA bonds coming due next month while piling into notes maturing in 2020 that are backed by a 51 percent stake in U.S. refining unit Citgo Holding and which pay a chunk of capital in the coming weeks. Their favored status can be seen in the outperformance over the past month:

“The problem with the PDVSA ’17 is that it’s trading at +97 dirty price so not great risk/reward on that bond,” wrote Siobhan Morden, who heads Nomura’s Latin America fixed income strategy. “The upside is like 3% on maturity and much greater downside risk if you’re wrong.”

Oil Minister Eulogio Del Pino, who was head of PDVSA until just a few weeks ago, told reporters Wednesday in Moscow that the Venezuelan company is negotiating with Russia’s Rosneft to change the collateral it uses for a loan from a minority stake in Citgo to some other asset.

That’s also helping to propel the secured notes, Morden said.

Some long-term investors and locals have sold the 2017 notes on waning conviction they’ll be paid and have been trying to get their hands on the 2020 bonds for weeks, according to a New York-based trader dealing in Venezuelan debt who isn’t authorized to speak publicly.

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