Venezuela

For years, investors in Venezuela and its state oil company, Petroleos de Venezuela SA, took comfort knowing that in the event of a default, there’d be assets they could potentially seize to recoup some of their losses, Bloomberg News reported. But for bond buyers with an even bigger appetite for risk, those willing to throw themselves at the mercy of President Nicolas Maduro’s survival and track record of making good on debt payments, there’s another option: Electricidad de Caracas, the state-run electric utility.

Venezuela’s dollar bonds are testing all time lows as President Nicolas Maduro plots how to respond to new U.S. sanctions and revive an economy in shambles. The country’s $4 billion of benchmark notes due in 2027 declined 4.6 percent in August to 39.65 cents on the dollar, just 7 cents away from the record low of 32.45 cents on the dollar seen in February 2016, Bloomberg News reported. State oil company PDVSA’s $3 billion of notes due in 2035 declined 5.8 percent in August to 35.3 cents on the dollar, only 6.2 cents above the record low.

U.S. sanctions imposed on Venezuela last week put limits on new debt from the country. But the Treasury Department’s move is having broader consequences in the bond market, where brokers taking a cautious stance are limiting trades in existing notes. Depository Trust Company, a custodian for more than $35 trillion of securities, temporarily put a block on services for Venezuelan bond trades, and some dealers have also stopped buying and selling the debt.

The world’s riskiest credit continued its downward spiral after Fitch Ratings lowered Venezuela’s grade deeper into junk, saying additional U.S. sanctions increase the probability of non-payment. Fitch reduced the nation’s long-term foreign and local currency ratings to CC, just two notches from default, from CCC on Wednesday, Bloomberg News reported. S&P Global Ratings and Moody’s Investors Service also rank the country at speculative levels.

Venezuela's close ally China said on Monday that history shows external interference and unilateral sanctions only make things more complex and will not help resolve problems, after the United States imposed new sanctions on Venezuela, the International New York Times reported on a Reuters story. U.S. President Donald Trump signed an executive order that prohibits dealings in new debt from the Venezuelan government or its state oil company on Friday in an effort to halt financing that the White House said fuels President Nicolas Maduro's "dictatorship".

President Nicolas Maduro summoned holders of Venezuelan bonds to a meeting with Economy Minister Ramon Lobo next week to discuss the effects of U.S. sanctions aimed at sovereign and state oil company debt, Bloomberg News reported. U.S.-based holders of Venezuela bonds will be hurt the most by the sanctions, Maduro said. President Donald Trump “burned the bonds in their hands” by trying to harm Venezuela, he said, without providing more details on the meeting. “Attention, holders of Venezuela bonds,” Maduro said on state television.

The threat of US sanctions against Nicolás Maduro’s regime in Venezuela escalated this week, with vice-president Mike Pence warning of “more to come”. But investors appeared unmoved, the Financial Times reported. While bond prices initially dipped on Wednesday on reports that new sanctions could ban trading in new issues from the Venezuelan government and state oil group Petróleos de Venezuela (PDVSA), several of the bonds rebounded on Thursday.

At what point does a country’s political situation become intolerable for bond investors? That is the question facing holders of Venezuela’s debt as the nation’s descent into strife raises questions about investment ethics, the Financial Times reported. This week, Credit Suisse circulated a memo outlining a ban on trading in two Venezuelan bonds, reflecting growing unease about the reputational risks of being associated with a country under the increasingly autocratic government of Nicolás Maduro.

Credit Suisse is banning its traders from dealing with a batch of Venezuelan bonds, fearing any potential reputational fallout from being seen to support the increasingly autocratic government of Nicolás Maduro, the Financial Times reported. Goldman Sachs was earlier this year lambasted by the country’s opposition for its asset management arm’s purchase of $2.8bn worth of Venezuelan bonds issued by the state oil company, PDVSA, which opposition members said amounted to a financial lifeline for the authorities.

Predicting when Venezuela will finally default has been a decade-long parlor game for bond buyers, but recent events add urgency to the exercise, Bloomberg News reported. After years of mismanagement, the country appears closer and closer to running out of money. Adding to investors’ concern is the increasingly anti-democratic turn of President Nicolas Maduro, whose move to rewrite the constitution and strip power from congress has been met with U.S. sanctions.