FILE PHOTO: Venezuela’s President Nicolas Maduro greets delegates after addressing the 73rd session of the United Nations General Assembly on September 26, 2018 at the United States Headquarters in New York, United States. REUTERS / Eduardo Munoz / File Photo
October 12, 2020
By Corina Pons, Luc Cohen and Mayela Armas
CARACAS (Reuters) – Three small mutual funds have begun buying failed Venezuelan bonds as hopes of a change of government fade and the South American nation suggests restructuring, according to sources and documents.
Canaima Capital Management, headquartered in the English Channel Island of Guernsey, Copernico, based in Uruguay, and Altana, based in the Cayman Islands, has bought heavily discounted bonds worth hundreds of millions of dollars in Caracas, New York, according to eight financial industry sources York, Miami, Madrid and London.
The funds appear to be part of a small group of contrary investors who oppose the broader market consensus that claims Venezuelan bonds that have not been serviced for nearly three years in an economic downturn are of low value.
The funds believe it is time to act and examine legal options instead of waiting for friendly negotiations with allies of Juan Guaido, who is recognized as Venezuela’s interim president by more than 50 countries despite not yet taking power.
The funds argue that due to a statute of limitations in the bond’s covenants, investors may not be able to recover missed interest payments after 2020 – a claim that is flatly denied by the Venezuelan Board of Directors on Creditors.
Still, efforts to heighten those concerns have fueled nervousness and increased bondholders’ willingness to sell their notes, according to four Venezuelan financial industry sources.
Altana, which two sources said was offering to buy bonds earlier this year, has already taken legal action against Venezuela to force payment. In a complaint filed in the U.S. District Court for the Southern District of New York on October 8, the Fund requested Venezuela to pay $ 108 million in defaulted bonds.
It came after mutual funds Casa Express and Pharo Gaia Fund won a $ 400 million summary judgment on defaulted Venezuelan bonds in U.S. courts in late September. This has been a setback for the Guaido team, which could encourage more bondholders to seek judgments instead of waiting for a negotiation.
“If the only way we can end the statute of limitations is to sue, unless we can reach an agreement,” said Celestino Amore, general manager of London-based IlliquidX, which works with Canaima Capital Management.
He added that emerging market investors are particularly keen on prescription clauses after being drawn on some Argentine bonds in 2015.
Luke Allen, an independent non-executive director for Canaima, said in a statement that the company “was pleased to have partnered with IlliquidX” and that the company is “focused on launching our special Venezuelan government bond opportunity vehicle.”
It was not immediately apparent how much wealth Canaima was managing.
Copernico, which according to the pitch document has $ 600 million under management, has accumulated Venezuelan bonds with a face value of between $ 100 million and $ 500 million, according to three people familiar with the matter.
Copernico did not respond to requests for comment.
US sanctions prohibit American individuals and funds from buying Venezuelan securities. However, these rules don’t seem to apply to Copernico, Canaima and Altanta as they are based outside of the US.
Bonds issued by the Venezuelan government trade near 7% of face value, according to Refinitiv Eikon, while bonds issued by state-owned oil company PDVSA sell for around 3%.
The bonds are not generating any revenue as the Maduro government stopped serving them in 2017.
Copernico and Canaima argue that investors are approaching a three-year statute of limitations for lawsuits against Venezuela and PDVSA pro bond covenants.
Treasury Secretary Delcy Rodriguez reiterated this argument in a September call to investors to negotiate a restructuring. This call has been largely ignored as US sanctions prohibit dealings with the Maduro government.
The Venezuelan Creditors’ Committee, which brings together US investors, has repeatedly stated that the prescription clause will not be triggered until Venezuela and PDVSA transfer interest or principal payments to the financial institutions charged with distributing them to investors.
Since in most cases this has not happened since 2017, most bondholders consider the clause to be irrelevant. In a statement earlier this month, the committee “reiterated its willingness to work towards an amicable restructuring”.
Guaido Special Prosecutor also said this month that the prescription clause has not been activated.
But not all funds were reassured by these statements. Discussions about the statute of limitations have encouraged some nervous bondholders to unload their banknotes.
“It was a bold move that favors these funds,” said a Caracas financial advisor familiar with the case, citing Rodriguez’s reference to the prescription clause.
(Reporting by Luc Cohen, Corina Pons and Mayela Armas, writing by Brian Ellsworth; editing by Nick Zieminski)
This article originally appeared on www.oann.com