Vene, Ecuador Face Payment Difficulty: Investors

Venezuela and Ecuador are two of the EM sovereign issuers that will face the most difficulty servicing their debt in the future, according to panelists at an EMTA event. Though a default for either is not an immediate concern, the two are seen as facing fundraising challenges. “At some point, it will become complicated for Ecuador to pay their 2015 bond,” says Alberto Bernal, head of research at Bulltick. The sovereign has no access to markets and its dollarized economy makes it unattractive to lenders, as the government has no devaluation option, he says. Venezuela is popular for its high yields and buoyed somewhat by high oil prices, but could run into spending trouble ahead of elections next year. “It’s a crisis waiting to happen, at some point they will run through their balance sheet,” says Siobhan Morden, head of LatAm research and strategy at RBS. Morden does not see a balance of payment or a credit crisis in the next 24 months, but notes clear downside risks. “Our next concern is an over-leveraging in the corporate sector,” says Paul Denoon, head of EM debt at AllianceBernstein, rather than sovereign default. He does not see this as a problem within the next 12-18 months, however, noting only that EM corporates are borrowing at a concerning rate. “There are more high-yield corporate issuers than we have had in the past,” says Denise Simon, EM portfolio manager at Lazard Asset Management. She says not all of them should be borrowing and not all investors are doing their homework. All spoke on an EMTA panel in New York Monday.