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Uncertainty Builds As Speculation Rocks Venezuelan Bond Market

Bonds sold by the Venezuelan government and its state-owned oil company PDVSA moved in opposite directions on Monday as speculation about an upcoming default grew.

President Nicolas Maduro’s regime may default on sovereign bond payments in order to continue servicing debt owed by PDVSA, Reuters reports.

Caracas plans to host its creditors for a special meeting next week to discuss the details of a debt restructuring plan for $60 billion in bonds.

“Some people thought that the refinancing announcement is only going to affect the Republic and not PDVSA,” an executive from a local fund that invests in Venezuelan debt told Reuters. Three other investors who hold the bonds also said they saw similar patterns.

“On balance I think people are reading too much into it,” another anonymous fund manager said regarding talks of an impending federal bond default. “Every single statement around restructuring has mentioned PDVSA as well as the sovereign.”

A $1.2 billion bond payment with no grace period came due last week, but investors still have not seen the money in their bank accounts. Officials said they had initiated the transaction on the due date.

Maduro went on state TV last Thursday and said that he would seek a restructuring of Venezuela’s debt, but his phrasing caused some confusion. As Bloomberg reported on Friday, he switched between “refinancing,” which is a more benign form of negotiation with bondholders, and a “restructuring,” a more technical term that tends to be associated with a default and stiffing creditors.

However, he said it would be the last time it paid creditors in full, and moving forward Venezuela wanted some sort of debt relief. "But after this payment, starting today, I decree a refinancing and a restructuring of the external debt," Maduro said on TV. Again, the implications of this are unclear.

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By Zainab Calcuttawala for Oilprice.com

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