Venezuelan bonds get harder to trade as sanctions spur caution

Sanctions have sparked confusion by imposing a blanket ban on trading Venezuelan bonds, but at the same time carving out exceptions

Lima/Bogota: US sanctions imposed on Venezuela last week put limits on new debt from the country. But the Treasury Department’s move is having broader consequences in the bond market, where brokers taking a cautious stance are limiting trades in existing notes.

Depository Trust Company, a custodian for more than $35 trillion of securities, temporarily put a block on services for Venezuelan bond trades, and some dealers have also stopped buying and selling the debt. Meanwhile, prices have fallen to near the lowest in a year and rating agencies are cutting the credit ever deeper into junk territory. The CC grade for Venezuela at Fitch Ratings is the worst in the world for any country that isn’t in default.

“For many broker dealers who may not ordinarily deal with those kinds of securities, it’s simply not worth the risk,” said Ronald Meltzer, a senior counsel at Boston-based law firm WilmerHale who focuses on compliance and enforcement matters tied to economic sanctions.

The sanctions have sparked confusion by imposing a blanket ban on trading Venezuelan bonds, but at the same time carving out exceptions that authorise transactions on almost all the country’s existing notes, leaving investors nervous they might inadvertently run afoul of the rules. The Venezuelan government and its state oil company have about $67 billion in debt outstanding, and the notes are among the most-traded securities in emerging markets.

DTC issued a notice Tuesday that it had suspended all services, with the exception of custody, on 35 Venezuelan securities. Wednesday, it told investors it was reinstating service for 29 of them. An outside spokesman for the company declined to comment.

Cantor Fitzgerald and its affiliates, GFI Group Inc. and BGC Partners Inc., have stopped trading of all Venezuelan bonds, according to four people familiar with the matter.

Law firms published alerts to clients on various implications of the sanctions. Cleary Gottlieb pointed out that it appeared Venezuela wouldn’t be able to sell its own holdings of Treasuries. Latham & Watkins said US nationals should be cautious when dealing with the Venezuelan government, noting that some officials are on US blacklists.

President Nicolas Maduro said last week that US-based holders of Venezuela bonds would be hurt the most by the Trump administration’s sanctions.

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