Venezuelan Bonds Drop on Report Government May Owe $8 Billion

Venezuelan dollar bonds fell the most in three weeks after the New York Post said the country may have to pay as much as $8 billion to holders of securities issued by a state-run bank.

The yield on Venezuela’s benchmark 9.25 percent bonds maturing in 2027 rose 19 basis points, or 0.19 percentage point, to 13.12 percent at 1:06 p.m. in New York, according to JPMorgan Chase & Co. Yields surged as much as 50 basis points earlier today. The bond’s price fell 1 cent on the dollar to 74 cents.

A U.S. federal appeals court upheld on Dec. 16 earlier decisions in favor of an effort by Skye Ventures to collect as much as $900 million, including accrued interest, from Venezuela for promissory notes issued by Banco de Desarrollo Agropecuario, known as Bandagro in 1981, the New York Post said Dec. 18, citing David J. Richards, a lawyer and managing director of Skye Ventures. The government may have to pay as much as $8 billion if other investors file claims, the newspaper said.

“There will be further appeals and ultimately we believe the $8 billion is way off,” Bret Rosen, a Latin America debt strategist at Standard Chartered Bank in New York, said in a note to clients. “Market reaction seems exaggerated.”

The extra yield investors demand to own Venezuelan bonds instead of U.S. Treasuries widened 23 basis points to 1,047, according to JPMorgan’s EMBI+ index.

An official at the Venezuelan Finance Ministry declined to comment.

Jay Kelly Wright, the Washington-based lawyer at Arnold & Porter LLP representing the Venezuelan government in the case, didn’t immediately return a phone message and e-mail seeking comment.

Skye Ventures, the trade name for DRFP LLC, said it acquired the notes after an October 2003 memo from the Venezuelan finance ministry’s solicitor general said they were valid. The South American nation subsequently said the notes issued by Bandagro were forgeries and refused to honor them, according to the appeals court. Bandagro was closed in 1983.

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net.

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net