Venezuela’s creditor group has been expanding and now accounts for nearly 40% of all the debt outstanding, putting it in a stronger position as fresh optimism builds that the nation’s long-delayed restructuring is high on the agenda in Washington and Caracas.
The ad-hoc group now holds about 37% of the outstanding debt, a nominal value of at least $22 billion, according to people familiar with the matter. The group, which includes Grantham Mayo Van Otterloo & Co. and T. Rowe Price Group Inc., expects to reach 40% of the debt in the coming weeks, the people said, asking not to be identified discussing private information.
Optimism the process will move forward after months of delays has buoyed the nation’s defaulted bonds. Notes due in 2027, some of the most liquid, are up about 4 cents this week, recouping all the losses since late September, when local media reported authorities were planning to delay debt talks to focus on oil deals.
Recent investor meetings in Washington and Caracas have cemented the view that negotiations will kick off soon. Investors visiting Venezuela with JPMorgan Chase & Co. were optimistic about recovery prospects and the timing of a potential settlement, according to other people familiar with the matter, who asked not to be identified. Morgan Stanley’s trading desk emerged from sit-downs in the US capital with a positive view, citing that parties are still keen to advance the process quickly.
“The market wants a quick restructuring, and signals from the US government last week point toward that being the most likely direction of travel,” said Matthew Graves, a portfolio manager at PPM America.
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The latest sentiment is a sharp turnaround from the concerns about delays in the restructuring process, which was announced about five months ago. After two devastating earthquakes in June, the government missed its own deadline to release a debt sustainability analysis, raising doubts about the timeline that officials had promised.
“A restructuring of this complexity, the fact that they thought they could get it organized by the end of June was just so fanciful,” said Lee Robinson, founder of Altana Wealth Ltd., a money manager that made an early bet on the country’s debt when it was trading at single digits.
Robinson added that he’s not concerned just yet.
“I’ll get more worried as we approach year-end and we haven’t seen any further steps,” he said.
Venezuelan bonds have lingered in default for the better part of a decade, with no prospect for a restructuring until the US captured strongman Nicolas Maduro in early January. The rapprochement between Washington and Caracas triggered one of the world’s sharpest debt rallies, with the bonds due in 2027 returning more than 60% this year. Total obligations, including unpaid interests, arbitration awards, loans and other commitments, are estimated to be between $150 billion and $200 billion.
“You had a significant rally in these bonds this year,” said David Robbins, head of TCW’s emerging-markets group. “Ultimately the recoveries are going to be certainly in the mid-50s or higher.”
Investors have still been speculating about the International Monetary Fund’s potential involvement in the process, even though authorities have ruled out requesting financial assistance. An IMF assessment could incorporate more conservative scenarios for oil production and extend the restructuring timeline, potentially cutting estimated recovery values by almost 19 percentage points to just under 38%, according to EMFI Securities.
“Market rumors this week suggest that the Delcy Rodríguez administration will continue pushing for a quick debt restructuring and that the IMF will only provide advice,” said Guillermo Guerrero, head of research at EMFI. “While these are unconfirmed rumors so far, no IMF ownership of the debt sustainability analysis would give more leeway for a softer deal.”