31 July 2019
The feared firesale of Venezuela’s government bonds after JP Morgan effectively cut them out of its popular bond indices earlier this month has yet to materialize, but things are about to get interesting – reports Reuters.
Venezuela would be prime fodder for litigation-loving funds according to Professor Rodrigo Olivares-Caminal, Chair in Banking and Finance Law at Queen Mary University in London. Close to $40 billion of its bonds have no Collective Action Clauses (CACs), terms typically spelling out that any restructuring can go ahead with a 75% or 85% approval from investors. That includes all of the $35.6 billion issued by state-owned oil company PDVSA, which could thus easily be exposed to a lengthy legal grapple with holdouts. “If you don’t have CACs, you will always have the threat of having holdouts,” Olivares-Caminal said. With the JP Morgan move, “many institutional investors will offload (their bonds), so that is how the bonds will end up in the hands of a different type of investor.”