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Venezuela Bonds Could Soar Post-Restructuring
18 Mar
Summary
- Venezuelan bonds could surge significantly upon restructuring.
- Oil production recovery is key to creditors being repaid.
- Sanctions relief and recognition are vital for restructuring.
Analysts at Morgan Stanley predict a significant potential surge in the value of Venezuela's government and state oil firm bonds following their eventual restructuring. This outlook is contingent upon the country's ability to ramp up oil production, a factor deemed crucial for creditors to receive repayment.
Restoring oil output is viewed as a primary priority that could expedite recovery. Morgan Stanley estimates that Venezuela's oil production could reach approximately 2.2 million barrels per day by 2030, potentially reducing the required debt writedown to 30% on an estimated $190 billion of debt.
For a debt restructuring to occur, several conditions must be met. These include the easing of U.S. sanctions and formal U.S. recognition of the current Venezuelan authorities, which would enable discussions between Caracas and its creditors. The International Monetary Fund's assessment of the country's finances would also be necessary.
In a bullish scenario, sovereign bonds could reach around 58 cents on the dollar, with PDVSA bonds potentially hitting 50 cents. Conversely, a severe restructuring, where unpaid interest is ignored and PDVSA faces insolvency, could lead to a decline in bond values.
