Fixed Income Analysis /

Venezuela: Moderation of trade sanctions could stimulate PDVSA bonds convergence

  • We outline our preference for PDVSA over Sovereign notes

  • The end of the interim government is near, just when legal pressures over CITGO are mounting

  • We expect Biden to extend the ban on the sale of CITGO, which bodes positively for PDVSA bonds (except for the 20s)

Ramiro Blazquez
Ramiro Blazquez

Head of Research and Strategy

25 October 2022
Published byBancTrust

The waning star of opposition leader Juan Guaidó and the imminent demise of the “interim government” figure in January 2023 provides another excuse for the Biden administration to soften its stance towards Maduro’s regime.

Some moderation of trade sanctions could speed up the convergence of PDVSA bond prices towards those of the Sovereign, especially considering the low levels at which PDVSA instruments are trading. The upside on Venezuelan bonds would be held back until there is evidence that the next presidential election will not be censored by the international community.

In the meantime, we believe that US courts will uphold the validity of CITGO shares as collateral of the PDVSA 20s, in line with the October 2020 judgement of the District Court of the Southern District of New York. Independently of the decision to be taken by the higher US court, we expect the Biden administration to continue protecting the company, through OFAC, not only from bondholders but from any judicial action. President Biden has strong reasons to continue protecting the PDVSA subsidiary if he wants to keep alive the possibility of a negotiated solution to the Venezuelan crisis.

Our relatively optimistic view on this matter is based on two important precedents [Iraq (2003) and Iran (1979-1981)], which support the case for Biden to use his executive power to shield CITGO. This would occur even in the absence of the figure of an interim government.