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Venezuelan Bond Prices Slide as Maduro Seeks to Restructure Debt

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11/03/2017 | 04:30pm CET
By Julie Wernau and Kejal Vyas 

Venezuelan bonds tumbled Friday after President Nicolás Maduro said the cash-strapped nation would seek to restructure its debt, an announcement that confounded bondholders and analysts who say there is no clear way forward because of U.S. sanctions.

Bonds of state-owned oil company Petróleos de Venezuela SA, due in 2022, dropped to 28 cents on the dollar Friday morning from 48 cents before the announcement, according to MarketAxess BondTicker. Venezuela's benchmark government bond due 2027 dropped 15 cents to 20 cents on the dollar in London trading, according to UBS Wealth Management.

The Venezuelan president announced late Thursday that, after making a bond payment Friday, he would attempt a restructuring of the country's remaining debt.

Mr. Maduro and other Venezuelan government officials had said in the past they would pay off their debt, and in recent years investors have been rewarded with some of the best returns in emerging markets. But two hefty payments due back to back over the past week have made some bondholders and analysts acutely nervous about the country's ability to pay.

PdVSA had $1.2 billion in principal and interest due Nov. 2. Last week, the state-owned oil company said it would pay the $842 million in principal on a separate bond that was due Oct. 27, and Venezuelan bonds rallied after the announcement.

The South American country is stretched for cash with prices for oil, its main export, well below the level of three years ago. U.S. sanctions also have restricted Venezuela's options. President Donald Trump issued an executive order prohibiting U.S. institutions from trading new bonds that would serve to help finance Mr. Maduro's government. The sanctions also limit dealings with Venezuelan officials.

Mr. Maduro said Thursday that Vice President Tareck El Aissami would be in charge of negotiating the restructuring. The U.S. government put Mr. El Aissami on a sanctions list in February for allegedly aiding drug traffickers. In the past, Mr. El Aissami and other Venezuelan officials have dismissed U.S. sanctions and accusations as attempts to destabilize the country's leftist government.

Venezuela's information ministry, a spokesman for Mr. El Aissami and a spokesman for PdVSA didn't immediately respond to requests for comment.

"The way in which this has been handled does not give confidence that refinancing or restructuring talks will start smoothly nor that there will be a quick solution," said Stuart Culverhouse, head of macro and fixed income research at the specialist frontier and emerging markets investment bank, Exotix Capital, which doesn't own Venezuelan securities.

"Details are sparse and it is not really clear what the government intends, nor whether it can do anything at all with U.S. sanctions in place," he said.

Write to Julie Wernau at [email protected] and Kejal Vyas at [email protected]

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