VENEZUELA
PDVSA STAYS CURRENT ON CITGO-
BACKED BONDS
Investors have received payments due
October 27 on PDVSASûûûBONDS ûASû
6ENEZUELAûCONTINUESûTOûREMAINûCURRENTûONû
its only dollar security not trading in
distressed territory.
h7EûHAVEûBEENûPAIDûINûFULL vûONEû
bondholder told IFR on Tuesday.
The government has prioritised payments
ONûTHEûSûnûBACKEDûBYû0$63!Sû53ûUNITû
CITGO – given the importance of the
underlying collateral.
"UTûAûRECENTûCOURTûDECISIONûALLOWINGû
Canadian gold miner Crystallex to attach
SHARESûOFû0$6û(OLDING ûWHICHûOWNSû#ITGO û
cast doubt on the notion that the 2020s were
safe from default.
3HOULDû0$63!ûLOSEûCONTROLûOFû#ITGO ûTHEû
6ENEZUELANûGOVERNMENTûWOULDûHAVEûLITTLEû
INCENTIVEûTOûPAYûTHEûS ûONEûANALYSTûSAID
!SûOFû/CTOBERû û6ENEZUELAûHADûMISSEDû
US$6.7bn in bond payments with another
53MûOWED ûBUTûWASûSTILLûWITHINûTHEû
DAYûGRACEûPERIODS ûACCORDINGûTOûBROKERû
Torino Capital.
,ASTûMONTH û0$63!ûOWEDûANû53Mû
amortisation payment on the 2020 bonds as
well as a US$107m coupon.
The 2020s fell to a low of 85.00–87.00 inAugust on the initial reaction to the
Crystallex case.
"UTûTHEYûHAVEûSINCEûTRADEDûBACKûUPûTOûTHEû
low 90s and were being quoted on Tuesday
ATû ûACCORDINGûTOû-ARKET!XESS ûAMIDû
TALKûTHATû0$63!ûWOULDûDOûALLûITûCOULDûTOû
make payments.
“We have clients telling us they have been
PAIDûBOTHûTHEûAMORTISATIONûANDûTHEûCOUPON vû
said a broker.
7ITHû#HIEFû*UDGEû,EONARDû3TARKûWAITINGû
to hear arguments from all parties involved
INûTHEû#RYSTALLEXûCASEûBYû$ECEMBERû û
0$63!ûWONûAûREPRIEVEûBEYONDûTHEû/CTOBERû
27 payment on the 2020s.
“The decision to allow oral arguments on
$ECEMBERûûSHOULDûTRANSLATEûINTOû0$63!û
KEEPINGûOWNERSHIPûOFû0$6û(OLDINGûANDû
#ITGOûATûLEASTûTOûTHEûBEGINNINGûOFûTHEûYEAR vû
JP Morgan analysts wrote in a report earlier
this month.
Crystallex is seeking to collect US$1.4bn
in compensation over a 2008
NATIONALISATION ûANDûITSûRECENTûLEGALûVICTORYû
ISûANûIMPORTANTûONEûFORû6ENEZUELANûDEBT
holders.
"YûALLOWINGû#RYSTALLEXûTOûTAKEûAIMûATû
COLLATERALûBACKINGû0$63!ûDEBT ûTHEûCOURTûHASû
EFFECTIVELYûAGREEDûTHATûTHEûOILûlRMûISûNOTû
separate from the government.
)NûLEGALûPARLANCE û0$63!ûISûANûALTERûEGOûOFû
THEûREPUBLIC ûPOTENTIALLYûLEAVINGûTHEûDOORû
open to other sovereign creditors that wish
TOûLAYûCLAIMûTOû0$63!ûASSETS
7HILEûONEûTRADERûSAIDû0$63!ûMAYûlNALLYû
PAYû#RYSTALLEXûTOûAVOIDûLOSINGû#ITGO ûOTHERSû
think it will ultimately have to relinquish
the US asset.
h4HEûONLYûWAYû6ENEZUELAûCOULDûSTOPû
creditors from ultimately attaching Citgo
would be to honour all of its defaulted
OBLIGATIONS ûSOMETHINGûTHATûITûISûCLEARLYûNOTû
INûAûCAPACITYûTOûDO vûWROTEû&RANCISCOû
2ODRIGUEZ ûCHIEFûECONOMISTûATû4ORINOREGIONAL
PROMERICA TAKES TO THE ROAD#ENTRALû!MERICANûlNANCIALûINSTITUTIONû
PROMERICA completed meetings last week for
a potential bond offering with Credit Suisse
and Bank of America Merrill Lynch.
The issuer visited accounts in
3WITZERLAND û"OSTON û.EWû9ORK û,OSû!NGELESû
ANDû,ONDONû%XPECTEDûRATINGSûAREû" ""n
"ASEDûINû0ANAMA û0ROMERICAûISûTHEûSIXTHû
LARGESTûlNANCIALûINSTITUTIONûINû#ENTRALû
America and the second largest credit card
ISSUERûINûTHEûREGION ûACCORDINGûTOû&ITCHBrazil tops off rally after
Bolsonaro win
LATIN AMERICA Market pleased by far-right candidate’s victoryBRAZIL bond prices moved higher last week
after far-right candidate Jair Bolsonaro won a
comfortable victory in Sunday’s presidential
elections.
The sovereign’s five-year credit default swaps
were quoted at 194bp early last week, or some
13bp tighter from the prior Friday’s levels,
according to a broker.
Cash prices were also half a point higher, with
Brazil’s 4.625% 2028s trading at 94.65-95.65,
according to a New York trader.
Markets had largely priced in a victory for the
right-wing firebrand and admirer of US President
Donald Trump, leaving some traders to wonder
whether there was much more immediate upside
to the recent rally.
“We all knew he was going to win,” said the
trader. “Seventy percent of the move was priced
so [the rest] is the 30%. Investors will take
advantage of the top to sell.”
Rating agencies are also holding judgment
while acknowledging that a Bolsonaro win has
improved market sentiment towards a country
that is still recovering from a wide ranging
corruption scandal and its deepest recession in
years.
Fitch warned on Monday that Brazil faces
deep structural challenges and it’s uncertain
whether the new administration will be able to
use its honeymoon period to pass key economic
reforms.
Markets like Bolsonaro’s pro business platform- pushed by his economic advisor Paulo Guedes
- a Chicago trained economist and one of the
founders of the investment bank that eventually
became BTG Pactual.
Structural reforms will be necessary to
increase Brazil’s potential growth rate, including
social security, which accounts for over 40% of
primary spending, said Fitch.
“Lacklustre growth remains a significant
challenge to reining in the deficit and halting
further expansion of the government debt ratio,”
it said.
Gross general government debt is expected to
rise closer to 80% of GDP this year and will likely
increase further in 2019-2020, while GDP growth
will be just over 1% in 2018 and 2.2% in 2019,
Fitch said.
While a Bolsonaro victory has buoyed
sentiment, a fragmented congress still means
any reform agenda is at risk, Moody’s said on
Monday.
And some of Guedes’s pro-market pledges - such as privatisations and tax reform - have
been at odds with Bolsonaro’s position, added
Moody’s, which remains cautious about the
president-elect’s ability to maintain a good
working relationship with congress.
“That Bolsonaro has not mapped out his fiscal
priorities means that we do not yet know the
extent to which the next administration will make
fiscal consolidation a top priority,” Moody’s said.
Moody’s, S&P and Fitch rate Brazil Ba2/BB-/
BB-.
Paul Kilby
- a Chicago trained economist and one of the