Venezuelan bond prices jump on report state oil giant has approved make-or-break debt payment

Key Points
  • Venezuela's state oil giant has made good on two missed debt payments and has approved funds for a critical $984 million payment due on Friday, Ecoanalitica reported
  • Bond prices jumped on the report, analysts said.
  • Venezuela has missed nearly $600 million in interest payments this month and faces another major bond deadline on Nov. 2.
Employees of Petroleos de Venezuela SA (PDVSA) wave flags during a swearing in ceremony for the new board of directors of Venezuela's state oil company in Caracas, Venezuela, on Tuesday, Jan. 31, 2017.
Carlos Becerra | Bloomberg | Getty Images

The price of Venezuelan bonds rose across the board Tuesday on a report that the nation's state oil giant has made good on two missed interest payments and had approved funds ahead of a critical debt deadline.

PDVSA has not made an announcement about the payments or the approval, but if confirmed, it would alleviate an immediate threat to the viability of embattled President Nicolas Maduro's regime. Venezuela is in the middle of a full-blown economic crisis and has suffered severe food shortages, violent street clashes and runaway inflation.

Macroeconomic research firm Ecoanalitica on Tuesday reported on Twitter that Petroleos de Venezuela SA had disbursed nearly $122 million in overdue interest payments. PDVSA, as the company is known, has also cleared a $984 million principal and interest payment on a note — the first of two make-or-break debt payments coming due within the next two weeks.

@ecoanalitica: #BreakingNews Venezuela's government recently paid the interests corresponding to PDVSA 27 and 37 bonds due to oct 12

@ecoanalitica: Investors should see these funds between today or tomorrow

@ecoanalitica: #BreakingNews The funds regarding the PDVSA 20 (capital + interests) is already approved, so it should become efective by friday

The first critical payment, due on Friday, is on a note that is secured by PDVSA's Houston-based refining firm Citgo. PDVSA stood to lose control of 50.1 percent of the company if it defaulted.

Following Ecoanalitica's tweets, the note rallied to nearly 85 cents on the dollar and was yielding 21.6 percent to maturity. On Monday, it was trading at 81 cents on the dollar with a 26 percent yield to maturity. The yield on the note tightened about 400 basis points. Bond yields fall as prices rise.

"The fact that they're paying that literally has caused the market to bounce a couple of points," said Russ Dallen, managing partner at Caracas Capital Markets, which runs the Venezuela Opportunity Fund. "There was no word from the government, no payment, so it was just looking like they were just going to default."

PDVSA's next major debt market obstacle comes Nov. 2, when it must pay $1.2 billion on a bond that is maturing.

The company's ability to scrape together enough money before Friday makes it likely that PDVSA will avoid default on the next big payment, according to Raymond Zucaro, chief investment officer at RVX Asset Management.

Venezuela appears to have shored up its cash pile by delaying debt service on interest that has a 30-day grace period, he said. Venezuela had missed $586 million in payments tied to the debt of the government, PDVSA and the utility Electricidad de Caracas this month.

The country also recovered at least $400 million in collateral by allowing a gold swap with Deutsche Bank to expire, Redd Intelligence, a firm that analyzes emerging markets, reported on Monday. That, combined with the delayed interest payments, might be how PDVSA cobbled together the payment due Friday, Zucaro speculated.

"Classic Venezuelan white-knuckler, right up to the edge," he said.