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Venezuelan government bond prices soared on Thursday after the US government eased sanctions that had barred American investors from trading them, handing immediate large gains to some hedge funds.
The price of Venezuela’s sovereign dollar bond maturing in 2027 jumped more than 70 per cent to 19 cents on the dollar, according to Bloomberg data.
The gains, which were mirrored in other Venezuelan debt, came after the US Treasury department late on Wednesday removed a ban on secondary trading of certain sovereign bonds as well as the debt of the state oil company, Petróleos de Venezuela (PDVSA), as part of a broader easing of sanctions against Caracas.
The country’s bonds have for years traded at a small fraction of their face value, following Venezuela’s default in 2017 and subsequent removal from widely followed indices, and the Trump-era trading ban.
Some investors said the relaxation of sanctions could pave the way for an eventual restructuring of Caracas’s debt. It could also allow Wall Street heavyweights to dive into the market in the hope of big profits on bonds still trading at highly distressed levels.
“We believe this is a start of a multi-step process . . . of reintroducing Venezuela into the financial mainstream,” said Nick Lawson, chief executive of London-based brokerage Ocean Wall and a Venezuelan bondholder since 2021. “That will likely include ramping up of Venezuelan oil and natural gas production and exports, re-inclusion of Venezuelan bonds in major emerging market indices, debt settlement negotiations and eventual restructuring.”
Among the hedge funds to benefit from Thursday’s rally was Lee Robinson’s Altana Wealth, which launched a fund to buy Venezuelan debt three years ago. The company has roughly $75mn invested in sovereign and PDVSA bonds with a combined face value of almost $500mn as of the end of September, Robinson told the Financial Times.
“There has been a major push from both sides [to improve relations] for over two years,” he said. “The Middle East and the Russian attack on Ukraine have perhaps increased the urgency from [the] US and allies.”
The Biden administration announced it would partially lift sanctions following the resumption of talks between the oil-rich Latin American government and its US-backed opposition faction. The US has been exploring ways to boost global oil supplies and lower prices following Russia’s full-scale invasion of Ukraine in 2022, which, along with a Saudi-led tightening of supply, have sent oil prices higher.
The new agreement means certain sanctions are lifted for six months, with renewal dependent on the country’s progress towards democratic elections. A ban on US investors buying any freshly issued Venezuelan debt remains in place.
Graham Stock, a strategist at RBC BlueBay Asset Management, said the sanctions on primary issuance would need to be lifted before the country’s debt could be restructured, a process that typically involved swapping defaulted bonds for newly issued ones.
Following Wednesday’s announcement, US secretary of state Antony Blinken said Washington expected the Venezuelan government to start releasing political prisoners and wrongfully detained US citizens. Five prisoners were released overnight, following the US announcements.
“It’s good news that the opposition and the government can agree on a path to free and fair elections under international watch but the complete normalisation of the oil industry and the financial access to capital markets will likely be a long path with many more hurdles ahead,” said Armando Armenta, emerging market strategist at AllianceBernstein.
“For the bonds, what will matter is whether the removal of the bond trading ban can lead to a successful restructuring of Venezuela and PDVSA debt,” he said.