Venezuela bonds soar as Maduro’s arrest brings investor rewards
The revival of Venezuela’s oil industry presents investors with a major opportunity in the country’s defaulted debt, according to a firm that generated a 30% gain after the country’s president, Nicolas Maduro, was captured by U.S. forces on Saturday. The Wall Street Journal reported Tuesday that U.S. President Donald Trump plans to meet with oil companies Chevron , ConocoPhillips and Exxon Mobil , along with other domestic producers, on Friday “to discuss making significant investments in Venezuela’s oil sector.” Speaking to CNBC on Thursday, Lee Robinson, founder and chief investment officer of Monaco- and London-based distressed debt investor Altana Wealth, said new money would be required to rebuild Venezuela’s oil infrastructure and return to peak production levels of around $100 billion revenue, with that coming predominantly from U.S. bond investors. “They will therefore want to have a share of those profits from that oil industry,” Robinson told CNBC’s “Squawk Box Europe.” “Whether that’s in GDP warrants, oil warrants or restructured debt, there’s plenty of upside for bondholders from here.” Venezuelan government debt , and that of the state-owned oil company PDVSA, entered default in late 2017 after U.S. sanctions restricted the government’s ability to issue new bonds or refinance existing debt, ultimately shutting off liquidity, while a collapse in oil production choked off a key source of foreign exchange. “This was an economy of $500 billion GDP mismanaged down to under $100 billion,” Robinson said. “We know where the oil is. It just hasn’t been released because they went from 50 or so major oil rigs to one.” Limited downside — and much more upside Since then, Venezuelan bonds have been “without doubt” the lowest priced distressed debt in the world, Robinson said, with a “significantly lower price” compared to other distressed situations such as Argentina and Ukraine. Robinson now expects a rush into both Venezuelan government debt and PDVSA bonds. “I suspect you’ll see a whole swathe of new investors come in in the next couple of weeks as emerging market funds look at their allocations to different countries and different sovereigns and come to the conclusion that there’s limited downside on Venezuela short term and much more upside,” he added. Altana Wealth manages about $500 million across a range of credit, event-driven, distressed and special situations hedge fund strategies. The firm has been a long-term investor in Venezuelan government debt through its Altana Credit Opportunities Fund, which has about $150 million in assets. Altana’s strategy notched a 30% gain following the capture of Maduro on Saturday, and Robinson sees further upside in the asset. “People forget that there is over 80 points in some of the bonds, and 100 points of interest that’s accrued on the bonds since default. We’re looking at bonds realistically at 182-200 and getting a recovery on those. A recovery of 25% on those, you’re talking about 50-plus points,” Robinson said of the investment thesis. As emerging markets funds hope to attract new capital inflows from asset allocators, Robinson said Maduro’s ouster removed a key downside for investors. “There’s plenty of upside. We now have a timeline for transition… and instead of a four- or five-year timeline, we are potentially looking at a nine-month or 18-month timeline for the restructuring of the debt.” Venezuela’s defaulted sovereign debt has come into sharper focus following Maduro’s capture, with Barclays upgrading Venezuela’s bonds to market weight following an improved outlook for bondholder repayments. Short-term uncertainty Natixis Corporate and Investment Banking economists said that the likelihood of bondholder repayments has increased, though it warned that questions over the reconstruction of the country’s institutions could mean short-term uncertainty. If the U.S. ultimately lifts sanctions, “the likelihood of bondholder repayment would increase significantly,” Natixis CIB economist wrote in a note. Anna Rosenberg, head of geopolitics at Amundi Investment Institute, said recovery values need to be reassessed in light of future oil revenue, as the country could go from producing under a million barrels a day to between two-and-a-half and three million per day over the next five years. “For bondholders, the regime change that matters is the one that unlocks those billions in capex and cash flows, but any restructuring will be complicated by large bilateral exposures to China [and] Russia,” Rosenberg said.
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