Venezuela’s Spectacular Bond Rally Runs Into a $170 Billion Reckoning
Investors will win if the country stabilizes and oil starts flowing.
Petróleos de Venezuela’s El Palito refinery in Puerto Cabello.
Photographer: Jesus Vargas/Picture Alliance/Getty ImagesVenezuela’s bonds lingered for years in financial purgatory. Investors held them as a lottery-ticket-like bet on the improvement of a dysfunctional country. Most steered clear.
That abruptly changed with a predawn US raid on Caracas.
The removal of President Nicolás Maduro, who faces charges of narcoterrorism in a federal court in New York, has opened a path toward what could become one of the largest and most complex sovereign debt restructurings since Greece’s crisis more than a decade ago. At stake is as much as $170 billion of obligations—a web of defaulted bonds, loans and legal judgments owed to creditors that range from Wall Street firms to China.
Markets reacted swiftly when US troops whisked Maduro out of Venezuela. By the time he was arraigned in Manhattan wearing a navy blue V-neck shirt, prices on government and state oil company bonds had surged to levels not seen since the country began defaulting in 2017.
Roughly $1.5 billion worth of bonds changed hands—about 10 times normal trading volume, according to traders. Securities that US investors had been dumping for as little as 1.5 cents on the dollar at the market’s low point were now going for 40 cents—a venture-capital-like windfall for those who were brave enough to buy at the bottom.
Some of the more optimistic forecasts suggest there may still be room for gains, with recoveries of 60 cents on the dollar or more. Bondholders—whose claims total roughly $100 billion, including past due interest—see potential for a straightforward process: Consolidate the various securities into a single restructuring and issue new debt. Creditors would get a payout, while Venezuela could raise fresh capital to rebuild its dilapidated oil infrastructure.
“The restructuring floor has probably been raised fairly substantially by the events that we’ve seen over the past couple of weeks,” says David Robbins, head of TCW Emerging Markets Group and a four-decade veteran whose funds own Venezuela bonds. “Now you’re probably thinking that with the restructuring, the ultimate recovery values are probably in the 40s, maybe as high as the 60s,” he says.
But there’s another precursor: bondholders’ fate after the US invasion of Iraq in 2003. In that case, they recovered only about 10 cents on the dollar after the oil-rich nation restructured about $125 billion of debt. “It’s going to be a fraught path for creditors, and they need to accept that reality,” says Jay Newman, a lawyer and former portfolio manager at hedge fund Elliott Management, which made a fortune betting on Argentina debt.
Two days after Maduro’s capture, the Venezuela Creditor Committee—a group of investors that includes Fidelity Investments, Morgan Stanley and Greylock Capital Management—convened on Zoom to reassess their outlook. Days later, the group said in a statement it was prepared to open talks.
Before negotiations can begin, however, the committee must secure a license from Washington, since Venezuela remains subject to US economic sanctions. Bondholders have been engaging with Donald Trump’s aides to align their efforts with the president’s priorities, according to people familiar with the matter. Members of the committee and its legal adviser declined to comment.
Removing Maduro while leaving much of the regime intact—Vice President Delcy Rodríguez leads the government as acting president—was a scenario creditors had anticipated, albeit not the one they considered the most likely. It’s one that could be more workable than a wholesale regime change, according to people familiar with their plans.
Rodríguez, among the few leaders of the current regime open to engaging US investors, has long served as the government’s point person with foreign capital. A lawyer and diplomat educated in London and Paris, she oversaw economic reforms that included allowing de facto dollarization and measures that helped revive investment in the oil industry.
Her advisers include Ecuadorian economists Patricio Rivera and Fausto Herrera, who pushed for dollarization, fiscal restraint and greater flexibility for the private sector. As cabinet members under former President Rafael Correa, the two were instrumental in restoring Ecuador’s access to global capital markets after its own default.
Any restructuring proposal remains a distant prospect. Still, creditors are modeling scenarios that would treat roughly $27 billion worth of bonds issued by state oil company Petróleos de Venezuela SA on par with $31 billion of sovereign bonds—a total that climbs above $100 billion once arrears are included, according to a JPMorgan Chase & Co. estimate.
Ultimately, recoveries will depend on Venezuela’s capacity to generate revenue, chiefly from oil. The country holds the world’s largest proved reserves but produces less than 1% of global supply, leaving ample room for growth. Creditors are considering instruments that would grant them a share of future oil revenue.
Trump, who’s urged major oil companies to invest in Venezuela, has said the US intends to control those cash flows. A Jan. 9 executive order blocks creditors and courts from accessing proceeds from Venezuelan oil sales held in US Treasury accounts. It was a move some bondholders saw coming, a necessary step that doesn’t alter their outlook for a recovery.
What’s more, Venezuela’s liabilities extend well beyond the bond market, encompassing loans from other countries and legal judgments accumulated over decades. “Nobody really knows how much debt is out there,” Newman says. JPMorgan estimates obligations at $150 billion to $170 billion, including roughly $15 billion to China. The International Monetary Fund says debt is about 180% of gross domestic product—but the government stopped publishing reliable economic data years ago.
Maduro, who ruled the country for more than a decade, repeatedly said he was open to talking with creditors. But those negotiations were largely theoretical. US sanctions shut Venezuela out of capital markets in 2017, freezing new issuance and effectively criminalizing even exploratory talks. Investors came to view the debt as a speculative relic.
At the market’s bottom, JPMorgan cut Venezuela’s weighting to zero in its flagship emerging-market bond index because sanctions limited trading. A US ban triggered a fire sale, allowing some European asset managers and hedge funds to build positions. The Biden administration lifted the trading ban in late 2023 amid a short-lived thaw in relations with Caracas.
Current bondholders include US giants like BlackRock and T. Rowe Price, emerging-market specialists like Ashmore Group and hedge funds including HBK Investments and Mangart Capital. Ashmore’s publicly traded shares surged in January as investors bet that its Venezuela holdings would pay off.
For them, Maduro’s removal has not resolved the question of how—or when—the country will confront its obligations. But it has changed something more fundamental: the assumption that it never would.
Richard Cooper, a partner at Cleary Gottlieb Steen & Hamilton, a law firm that’s represented Venezuela’s creditors in the past, says one condition is essential for success: “Ultimately, a comprehensive restructuring is going to require a legitimate, constitutional authorized government in Venezuela.” —With Vinicius Andrade, Caleb Mutua and Zijia Song
Fieser covers markets from New York; Yapur, from Bogo
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