I remember and found this Jan. news to be real interesting.
Venezuela: $5B Bond Issue With China, Half Of Citgo To Russia
By Dimitra DeFotisVenezuela’s finance ministry on Tuesday said it issued $5 billion in sovereign debt maturing in 2036, with a Chinese bank as the sole manager.
The government said the yield on the bond is 6.5% and it was issued under “Regulation S.” Nomura Securities’ Sioban Morden, head of Latin America fixed-income strategy, questions the issue and its value:
 Venezuela said it would replace its 100-bolivar note. Venezuela’s largest bill, it is worth pennies on the dollar.Dimitra DeFotis for Barron’s
” … It comes somewhat as a surprise on the official announcement from the Finance Ministry of $5 billion new sovereign issuance @ 6% coupon 2036 sinker placed directly with stated owned bank Banco de Venezuela via a Chinese bank sole manager … The unusual “physical delivery” listing on Bloomberg also implies a non-market based transaction with the previous 6% PdVSA 2022 private placement not ever having traded in the secondary market (from our experience) … The external indebtedness from the sovereign, unlike [state-controlled oil company] PdVSA, requires legislative approval and hence questions the legal framework of this recent issuance … the opposition has not endorsed the issuance so there would be obvious legal risks if you assume a political transition before the maturity in 2036. There is also decreasing optionality for additional sovereign issuance under the now opposition-controlled legislature and the legal limbo of the 2017 budget … The overhang of illegality makes it difficult to leverage this issuance for new funds (Rosneft?) or to finance arrears (importers?). It’s dubious that Rosneft (ROSN.Russia, ROSN.UK and OJSCY) would initially accept Citgo equity a few weeks ago and now accept only sovereign debt issuance as collateral for new funds … The legal risks would imply a deeper discount to the sovereign curve with already minimal if any market demand for new issuance …”
Pdvsa pledged a 49.9% stake in its U.S. refinery subsidiary Citgo to Russia’s state-controlled Rosneft in November, as loan collateral; the news leaked out in the week before Christmas, Argus Media reported, adding:
“PdV’s agreement with Rosneft means that 100 percent of Citgo is now pledged as collateral against distressed parent firm PdV’s debts … It is not clear yet if the previously undisclosed loan agreement between PdV Holding and Rosneft violates covenants relating to other debt obligations imposed on Citgo by its parent firm PdV …”
See our post Venezuela Currency & Inflation Crisis Means Regime Change Risk, Venezuela Currency Demonetization Delayed Again and all our recent posts on Venezuela.
Bonds issued by Petroleos de Venezuela or Pdvsa, the state-controlled oil producer, were among the top 25 holdings in the VanEck Vectors Emerging Markets High Yield Bond exchange-traded fund ( HYEM) as of Sept. 30, according to Morningstar.com. Venezuelan government debt is among the top holdings in the iShares JPMorgan USD Emerging Markets Bond ETF ( EMB). The iShares Latin America 40 exchange-traded fund ( ILF) was up 0.2% in recent trading, and produced a total return of more than 32% in 2016. The VanEck Vectors EM High-Yield bond fund total return in 2016 was nearly 16%, while the EMB total return was 9.3%.
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