Buy PDVSA Bonds as Gap With Sovereign Unjustified, Seaport Says
- Venezuela bonds trade as much as 10 cents higher than PDVSA
- Seaport’s Penfold says pricing disparity should change
Defaulted bonds of Venezuela’s state-oil company are undervalued and should be trading at levels closer to sovereign notes, according to Seaport Global.
Seaport’s managing director Ricardo Penfold is recommending buying Petroleos de Venezuela SA’s debt, which trades for as little as 9 cents on the dollar. The comparable government bonds go for around 19 cents, according to indicative pricing compiled by Bloomberg.
Debt from both PDVSA and the government has been in default for more than six years and US economic sanctions prohibit a restructuring for now.
But Penfold sees the disparity in pricing between the two sets of bonds set to change as foreign oil companies increase investment in the nation. After receiving permission from Washington to operate in Venezuela, those firms signed contracts directly with a subsidiary of PDVSA, which will help it generate cash and cut debt.
“The government is signaling that it has no intention of hollowing out PDVSA,” he wrote. “Higher production and lower debt strengthen PDVSA’s balance sheet.”
What’s more, recent court cases suggest creditors can argue the government is ultimately responsible for paying the PDVSA debts.
Venezuela began defaulting on about $60 billion of government and oil bonds in 2017, sending prices for the debt into a free fall. The market got a lift recently thanks to some changes in sanctions policy and JPMorgan Chase & Co.’s decision to reincorporate the bonds into its widely followed emerging-market indexes.
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