Facing shrinking options to attract foreign capital, Venezuela is expected to return to the international bond market. Investors and analysts are concerned about the effect of additional supply on the current assets, with some seeing liability management as the safest move. “It would be expensive for Venezuela or Petroleos de Venezeula (PdVSA) to issue and they would rather not issue if they can avoid it. If they issue debt, it will hurt their numbers. Doing refinancing via a liability management makes more sense,” says an New York-based EM debt trader, noting the large amount of debt outstanding and its significant share of the Embi index. This would mean a wide concession, he says. Venezuela 2027s are yielding 9.80%, he says, already “very cheap” to comparably rated credits. New finance minister Nelson Merentes is seen as more likely than his predecessor to engage the markets again. “More new issuance is likely, but I wouldn’t expect it to be the same level of supply that we’ve seen in the past,” says a New York-based EM portfolio manager. As for new supply risk, “we wouldn’t be as fearful of long-dated supply as we would have 18 months ago,” he notes, adding that there isn’t likely a change in willingness or ability to pay from the Chavez days. Unlikely to reform or attract additional foreign capital, debt issuance is the only option, Siobhan Morden, head of Latin America Strategy at Jefferies, tells LatinFinance. “I’d rather have a medium-term solvency crisis than a near-term liquidity crisis. The supply will be disruptive, but it is the least unpalatable option,” she says. As it’s difficult to issue for less than 10-year maturities, her shop sees supply risk on the long end of the curve. For PdVSA, Barclays finds a liability management operation would make the most sense. Facing $11bn due in the next three years, new issuance would signal less commitment to the economic adjustment expected by the market and raise the already unsustainable level of indebtedness
Category: Venezuela
Venezuela: Stand and deliver
A narrow and disputed election win by Nicolás Maduro opens the way for greater changes in Venezuela’s economic management
Maduro Picks Central Bank Head
Nicolas Maduro has tapped former commerce minister Edmee Betancourt for the role of president of Venezuela’s central bank. The nomination made by the Venezuelan president remains to be approved by the country’s National Assembly. Barclays flags the move as problematic. “This is not a positive nomination as we believe Betancourt – who is an ally of Jorge Giordani – will continue with the policy of subordinating the BCV to the Executive power,” the shop says. Following approval, she would take the spot left vacant by Nelson Merentes, who has been named finance minister.
Venezuela Names Finance Minister
Venezuelan President Nicolas Maduro has named Nelson Merentes as finance minister, in a series of cabinet moves following his recent election. Merentes, who has held the position before under Hugo Chavez, has been central bank president since April 2009. Barclays points out that during Merentes’ previous run as finance minister, in 2004-2007, he held Venezuelan 5-year credit default swaps at an average of 230bp. Levels are now at 780bp, the bank says. Barclays adds that it sees better relationships with the private sector and international markets ahead under Merentes. “Nonetheless, he will have a bigger challenge today than he had five years ago, given the increase in the size of the state and the number of the public enterprises after the expropriation policy that President Chavez started in 2007,†Barclays says. Merentes was also finance minister in 2001-2002.
S&P Negative on Venezuela
S&P has lowered the outlook on Venezuela’s B+ credit rating to negative from stable, it says, due to increasing political risk. The close retults of last week’s presidential elections and the doubts as to their legitimacy have increased uncertainty, which could weaken the government’s policy implementation, the agency says. A weakened government seeking less pragmatic and more interventionist policies would increase economic nonequilibrium, and likely prompt a ratings downgrade.
Vene Bonds Drop on Maduro Election
Venezuelan bonds fell on Monday as markets reacted to the election of Nicolas Maduro. The bonds fell around 3 pts on Monday morning, recovering somewhat before slumping again on broad weakness in the equity markets, according to one bond trader. He saw Venezuela’s 2027 bond changing hands at 98.25/98.75 on Monday afternoon, down 2pts to 2.5pts on the day. “It was a pretty active day, we saw good two-way flows,” he said. The drop came as bond investors were unsettled by Sunday’s election result, which was much closer than expected by pollsters. Maduro won 50.7% of the vote and opposition candidate Henrique Capriles, 49.1%. The close result “keeps the opposition relevant” – a positive, according to Jefferies. But the weak mandate for Maduro could encourage him to pursue populist policies that could destabilize the balance of payments, the analysts wrote in a note on Monday.
CAF Retaps CHF on Reverse Interest
Corporacion Andina de Fomento (CAF) took advantage of CHF50m ($54m) in reverse inquiry to raise CHF100m through a reopening of its outstanding 2021 Swiss franc-denominated bonds. The Venezuela-based development bank’s reopening represented its first transaction as a pure double-A rated entity and strictly targeted institutional accounts, according to people familiar with the transaction. The bond reopened at 100.360 with a 1.375% coupon to yield 1.326%, or MS+50bp, in line with MS+50bp guidance. The deal priced 5bp tight to the MS+55bp spread seen on the original sale done in January, and came in line with the secondary trading spread of MS+49bp and inside the issuer’s secondary USD levels. Approximately 13 accounts participated. Credit Suisse managed the transaction, rated Aa3/AA minus/AA minus. The sale brings the total outstanding size of the 2021s to CHF350m.
Fitch Lifts CAF
Fitch has raised development bank Corporacion Andina de Fomento’s (CAF) rating to AA minus from A+, it says. CAF received the upgrade largely because of the Venezuela-based lender’s increase in membership, to 18 countries by the end of 2012 from five in 2006 when it was last upgraded. Also its paid-in capital contributions, which are expected to rise to 75% by 2017. The outlook is stable.
Markets Brace for Post-Chavez Uncertainty
Though Venezuelan assets have mostly rallied since President Hugo Chavez became gravely ill, his death late Tuesday left analysts and investors unsure of what to expect during what could be a volatile transition period. “Many of the same risks continue. Our base case is that they will respect the constitution and call elections within 30 days,” Bret Rosen, head of LatAm research at Standard Chartered, tells LatinFinance. The rally of last few months has been based on the standpoint that Chavez wouldn’t last much longer, he explains, but it remains uncertain how the social and civil situation will develop and affect stability going forward. “Some in the market will see a positive in this news, but I expect more uncertainty than in the last few months,” says another LatAm economist. The news came too late in the day to determine the effect on PDVSA or Venezuela bonds. “Bonds will react strongly positively [Wednesday], with the Venezuela 2027s potentially dropping to that 8.5% yield handle we have forecasted for this benchmark bond. We expect this performance despite the consensus view of a likely [Vice President Nicolas] Maduro win as any change is viewed positively by the market,” Bulltick Capital says in a note. Venezuela’s constitution establishes that given the absolute absence of the president, early elections should be called within 30 days. Maduro is expected to face off against opposition candidate Henrique Capriles. “Under a potential Maduro administration, governability would likely be weaker and the power structure less concentrated than in the centralized and personalized structure led by President Chavez,” Goldman Sachs says in a report, noting Maduro enjoys a “slight edge” over the opposition in the election.
Venezuela: Making change
Despite devaluing the bolívar in February, Venezuela’s chronic dollar shortage continues. Another devaluation may well be on the cards