The US-Venezuela relationship as seen through the price of an oil-linked bond

By Rodrigo Campos

NEW YORK, Dec 5 (Reuters) - The ramp-up of U.S. pressure on Venezuelan President Nicolas Maduro's government is bringing fresh attention to the nation's defaulted bonds, including those of the state oil company Petroleos de Venezuela, known as PDVSA.?

Venezuela defaulted on its debt in 2017 but PDVSA continued to pay holders of a specific bond maturing in 2020. It?was issued in 2016 under a swap offer that replaced debt maturing the following year.?This bond is secured with a pledge of 50.1% of refiner Citgo Holding through PDVSA's wholly-owned subsidiary PDV Holding. But payments stopped after the opposition-led National Assembly declared the bond contract illegal in October 2019.

Canadian miner Crystallex International earlier in 2016 had won a $1.4 billion arbitration against Venezuela over the expropriation of a project by the government of Maduro's predecessor, Hugo Chavez.?

Crystallex later convinced a U.S. court that PDV Holding was the alter ego of Venezuela, so the court found the company liable for the country's debt. The process eventually spawned an auction of PDV Holding shares decided last month in favor of an affiliate of hedge fund Elliott Investment Management, which has set $2.1 billion aside to pay and extinguish the PDVSA 2020 bond.

The sale to Elliott's Amber Energy will not be executed until the U.S. Treasury gives it a green light.

Meanwhile Venezuela's broader debt crisis and U.S. sanctions dragged the bond price lower, trading as low as 10 cents on the dollar in mid-2020. Court-related developments, importantly the initial confirmation in 2020 that the debt was enforceable under New York law, revived investor interest.

The removal of many U.S. sanctions in October 2023 served as a renewed catalyst, boosting prices above 80 cents on the dollar, where they have remained for most of the time since. The ratcheting up of U.S. military pressure on the Maduro administration took the bond price to par for the first time in September, and on Thursday the bond closed at 100.25 cents on the dollar.

(Reporting by Rodrigo Campos, additional reporting by Marianna Parraga; Editing by Sonali Paul)