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Venezuela offers sovereign bonds to U.S. funds at 20 percent of its value - sources

Selling these bonds at 20 cents on the dollar is obscene. Yesterday, comparable bonds maturing in 2038 were trading for 45 cents. - Caracas Chronicles

Petroleumworld 06 07 2017

A Venezuelan state-owned bank is offering $5 billion worth of sovereign bonds maturing in 2036 at a discount of up to 80 percent to several Wall Street funds, according to a lawmaker and a finance industry source.

The move is part of the embattled socialist government's strategy to raise fresh funds to support the crisis-stricken economy by selling bonds, gold and shares in oil projects.

A potential deal, coming on the back of a controversial sale of state oil company bonds to Goldman Sachs last month, would likely heighten opposition criticism that Wall Street is handing President Nicolas Maduro a lifeline amid a bruising economic crisis and major anti-government protests.

The sovereign debt securities, held by state-owned Banco de Venezuela since their issuance in late 2016, were offered in early May to Goldman Sachs, but the U.S. bank rejected the deal, financial sources told Reuters.

"Now they are being offered to funds in New York, instead of to large banks, with a discount of up to 80 percent," said opposition lawmaker Angel Alvarado, who tracks the negotiations between Nicolas Maduro's administration and Wall Street and was informed of the offer by sources in New York.

"They're still holding fire sales," he added, criticizing the potential deal with Maduro's cash-strapped administration.

Opposition lawmakers, economists and lawyers have campaigned to cut off financing for Maduro, sending letters to the heads of 13 major banks and flagging the reputational risk of working with Caracas.

But in May, Goldman Sachs and Nomura bought some $2.9 billion in bonds from Venezuelan state oil company PDVSA, via intermediaries, and at a discount of up to 70 percent, the U.S. bank and sources close to the Japanese bank said.

Banco de Venezuela is also seeking to sell its bonds through intermediaries, including Hong Kong-based Haitong Securities, which coordinated the physical issuance of the bonds in 2016, a New York-based financial source familiar with offers said.

"Bonds similar to 2036 are in the market with (a price of) between 35 and 38 percent (of their original price)," said the source familiar with the talks. "But they are offering them at a 20 percent because the securities have not been dematerialized and require a bank with the infrastructure for that process."

Several analysts and traders believe that Venezuela has not been able to sell the bonds so far because they were issued physically and cannot be traded electronically.

Banco de Venezuela and Haitong Securities did not immediately respond to a request for information from Reuters.

In a potential worry hovering over these deals, White House officials told Reuters this month that the Trump administration is concerned about any action by U.S. companies that provides a financial boost to Venezuela's government.

Story by Corina Pons; Writing by Alexandra Ulmer; Editing by Cynthia Osterman from Reuters.

06 06 2017

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