In a turn of events, Venezuelan PDVSA bonds have taken a nosedive following a New York court ruling that their validity must be determined by Venezuelan law. The ruling, which came just a day after the decision, has raised serious questions about the fate of $2 billion worth of bonds issued by the state-run oil company.
The controversy stems from a legal battle initiated by Venezuela’s opposition, which controls PDVSA’s U.S. assets. They argue that the bonds, set to mature in 2020, are invalid because they were not approved by Venezuela’s National Assembly. The New York State Court of Appeals sided with this argument, stating that local law in the place of issuance should determine the validity of the bonds.
At the heart of the matter is the fact that these bonds are backed by a 50.1% stake in Citgo Holding, which gives PDVSA ownership of Citgo. If the bonds are invalidated, creditors would be prevented from seizing Citgo, a move that could have significant financial implications.
The news comes just weeks after the Biden administration lifted restrictions on U.S. investors buying Venezuelan bonds, leading to a surge in bond prices. However, the recent court ruling has sent shockwaves through the market, with PDVSA notes dropping 17 cents following the decision.
Despite the recent setback, some analysts remain optimistic about the long-term prospects of Venezuelan bonds. They argue that the lifting of the trading ban will unleash pent-up demand from U.S. investors and could lead to a significant rise in bond prices once the legal issues are resolved.
The situation remains fluid, and investors are advised to proceed with caution as the legal battle over the validity of PDVSA bonds continues to unfold.
(Source: Bloomberg | Reuters | OilPrice.com)
