Three small investment funds have started buying defaulted Venezuelan bonds as hopes of a change of government are fading and the South American nation is proposing a restructuring, according to sources and documents.
Oct 12, 2020
Canaima Capital Management, headquartered on the English Channel island of Guernsey, Uruguay-based Copernico, and Cayman Islands-based Altana have bought heavily-discounted bonds with face value of hundreds of millions of dollars, according to eight finance industry sources in Caracas, New York, Miami, Madrid y London.
The funds appear to be part of a small group of contrarian investors bucking the broader market consensus, which maintains there is little value in Venezuelan bonds that have not been serviced in nearly three years amid an economic crisis.
The funds believe it is time to act and to evaluate legal options instead of waiting for a friendly negotiation with allies of Juan Guaido, who is recognized by more than 50 countries as Venezuela’s interim president, even though he still hasn’t taken power.
The funds argue investors may be unable to recover missed interest payment after 2020 due to a statute of limitations clause in the bonds’ covenants – an assertion flatly denied by the main committee for Venezuela creditors.
Nonetheless, the efforts to amplify these concerns has fueled nervousness and increased the willingness of bondholders to sell their notes, according to four Venezuelan finance industry sources.
Altana, which two sources said was offering to buy up bonds this year, has already taken legal action against Venezuela to try to force payment. In an Oct. 8 complaint filed with the United States District Court for the Southern District of New York, the fund demanded payment from Venezuela on $108 million of defaulted bonds.
That came after investment funds Casa Express and Pharo Gaia Fund in late September won a $400 million summary judgment on defaulted Venezuelan bonds in U.S. courts, a setback for Guaido’s team that could prompt more bondholders to seek judgments rather than waiting for a negotiation.
“If the only way to stop the statute of limitations is to sue, we have to sue, unless we reach some kind of agreement,” said Celestino Amore, managing director of London-based firm IlliquidX, which is working with Canaima Capital Management.
He added that emerging market investors are particularly attuned to prescription clauses after they were invoked on some Argentine bonds in 2015.
Luke Allen, an independent non-executive director of Canaima, said in a statement that the company “was pleased to have joined forces with IlliquidX” and that the firm was “focusing on launching our dedicated Venezuelan sovereign debt opportunity vehicle.”
It was not immediately evident how much assets Canaima has under management.