November 6, 2017 / 6:56 PM / a year ago

Venezuela bonds tumble, PDVSA bonds rise on partial default speculation

CARACAS, Nov 6 (Reuters) - Venezuelan bond prices tumbled on Monday while those of state oil company PDVSA were mixed, affected by speculation that the government of President Nicolas Maduro could halt payments on sovereign bonds while maintaining payment on PDVSA debt.

The OPEC member country’s cash-strapped government invited creditors to a Nov. 13 meeting in Caracas on Friday, after announcing plans to potentially restructure some $60 billion in bonds.

Venezuela’s 2018N bond, the country’s next sovereign maturity, was down 31.125 points to a bid price of 34. Meanwhile, several PDVSA bonds were rising, with the benchmark 2022 rising 2.000 points to a bid price of 32.

“Some people thought that the refinancing announcement is only going to affect the Republic and not PDVSA,” said an executive from a local fund that invests in Venezuelan debt, who asked not to be identified. Three other investors who also hold the country’s paper said they saw similar patterns.

PDVSA owns oil refineries in the United States that could be targets for seizure in case of corporate default, while Venezuela has fewer known assets and thus is perceived as facing fewer consequences to defaulting, the sources said.

PDVSA has already pledged 50.1 percent of shares in its U.S. refining subsidiary Citgo as collateral to holders of its 2020 bond, and has put up the remainder as collateral on a loan from Russia’s Rosneft. That suggests PDVSA’s assets might not be sufficient to cover close to $30 billion in outstanding bonds.

Neither Venezuela’s Information Ministry nor PDVSA responded to requests for comment.

One fund manager said the discussion of a partial default strategy by Maduro was still speculative.

“On balance I think people are reading too much into it,” said the fund manager, who asked not to be identified. “Every single statement around restructuring has mentioned PDVSA as well as the sovereign.”

Investors remain confused by Maduro’s announcement that his government will continue to pay but that it will also refinance and restructure debts. The latter options are all but impossible given U.S. sanctions against Caracas that block U.S. citizens from acquiring newly-issued Venezuelan debt.

Many believe Maduro’s announcement was meant to pave the way for default, because the country’s debt burden has left it desperately short of basic goods such as food and medicines - spurring malnutrition and preventable diseases.

Venezuela and PDVSA together have around $60 billion in outstanding bonds, according to Thomson Reuters data, and owe some $1.6 billion in bond service and delayed bond interest payments by the end of the year.

Next year’s service is close to $9 billion, of which $6 billion must be paid by Venezuela.

Investors are still waiting for a $1.2 billion payment on PDVSA’s 2017N bond that came due last week. Officials last week said they had initiated the payment.

Such payments have been increasingly slowed, as banks worry about doing business with PDVSA following the U.S. sanctions. (Reporting by Corina Pons and Brian Ellsworth in Caracas and Sujata Rao-Coverly in London, Editing by Rosalba O’Brien)

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