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Credit Suisse bans trading of Venezuela and PDVSA bonds

Gianluca Colla/Bloomberg

Bank says it has ‘no appetite' to help fund Maduro government. Lender also halting business with Venezuelan counterparties

By Jan-Henrik Foerster and Katia Porzecanski

Petroleumworld 08 11 2017

Credit Suisse Group AG has banned its traders from buying or selling certain Venezuelan securities that critics of the nation's government say help fund an authoritarian regime.

The Zurich-based bank is halting trading in two bonds issued by the state and its oil company, as well as any notes from a Venezuelan entity after June 1, according to an Aug. 7 company memo, a copy of which was seen by Bloomberg. The lender is also restricting business with Venezuelan counterparties, including private individuals and companies. A Credit Suisse representative confirmed the memo's contents.

The decision comes after the U.S. began imposing sanctions on some Venezuelan officials in response to the anti-democratic turn of President Nicolas Maduro, who installed a widely criticized assembly to rewrite the country's constitution. It also marks a victory for Venezuela's opposition leaders, who had been urging Wall Street banks not to throw Maduro a financial lifeline, and spearheaded a public shaming of Goldman Sachs Asset Management after it purchased some of the securities now prohibited by Credit Suisse.

“In light of the political climate and recent events in Venezuela, and actions taken by the current government, we want to ensure that Credit Suisse does not provide the means for anyone to violate the human rights of the Venezuelan people,” according to the memo.

The prohibited securities are government debt due in 2036, as well as 6 percent coupon bonds issued by Petroleos de Venezuela due in 2022.

Oil Dependent

In recent months, more than 100 people have died while participating in street demonstrations against the regime.

Faced with reduced oil prices, the country -- which depends on crude sales for 95 percent of its export revenue -- has been plagued with shortages of everything from toilet paper to antibiotics and food. With the Maduro government quickly running out of money to pay for imports and interest payments on foreign debt, it has turned, in part, to asset sales to raise whatever cash it can. In response, the opposition has sought to discourage potential buyers -- part of a broader initiative, outsiders say, to deepen the government's cash crunch and expedite its collapse.

Their tactics appear to be working. Financial deals with Venezuela have been under scrutiny since the investing arm of Goldman Sachs Group Inc. bought almost $3 billion of the PDVSA 2022 bonds in May at a steep discount from the nation's central bank, prompting calls by opposition leaders for U.S. regulators to investigate the money manager for engaging in corrupt practices.

The transaction spurred protests outside Goldman Sachs's offices in Manhattan, as well as an internal review by its compliance and legal staff. Goldman Sachs has said it bought the bonds for asset-management clients through a broker, and didn't provide money directly to the government.

‘No Appetite'

While only a handful of brokers currently trade the securities -- with most opting to stay away -- Credit Suisse is the first bank known to formally ban them.

Venezuela's 2036 notes, which weren't part of the Goldman Sachs transaction, were also included in Credit Suisse's restrictions because they were issued late last year to two government entities and have been recently shopped around in an effort to raise cash.

Credit Suisse has “no appetite for providing any funding to the Republic of Venezuela” directly or through third parties when it believes there's intent to pass the funds on to the government, according to the memo.

The bank has banned any business with counterparties controlled by the Venezuelan government, as well as those in the private sector, unless they've been approved by Credit Suisse's reputational risk office or are identified as a permissible activity. That includes market-making of Venezuelan bonds and credit derivatives, as well as the use of Venezuelan assets as collateral for financial transactions with non-Venezuelan institutions.

Credit Suisse is distancing itself from the nation after having benefited from its role as financial adviser for the $2.8 billion bond swap PDVSA conducted in October. It's unlikely another business opportunity of that kind will emerge as long as the borrowing costs for the company and Venezuela remain prohibitively high.

The move by the bank “shows that it is rapidly withdrawing its support and association from the Maduro regime,” said Russ Dallen, a managing partner at Caracas Capital.


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