Venezuela’s government has devalued its currency, bowing to inflationary pressure in a move that analysts say could have anti-Chavez political implications. The Bolivar has been reset to VEB6.30 per USD from VEB4.30. “Inflation [22.2% headline year-on-year] is now endemic and is likely to accelerate further in 2013,” Goldman Sachs says. Headline inflation has increased 98% since the previous devaluation, in January 2010. The FX devaluation should help ease some pressure on the strained fiscal accounts while also discouraging imports and increasing the trade surplus, Jefferies says. “There is surely going to be a political cost, which may weigh against the Chavistas and hence be viewed favorably from the markets if it shifts protest votes to the opposition,” the shop says. The government has also announced changes in the management of foreign currency by exporters of non-traditional products and USD deposits in the domestic financial system. Under the new rules, exporters can retain 40% of the value of their exports, up from 30%, while locals will be able to open dollar accounts and receive transfers from abroad in local banks.The VEB trades at more than VEB18.00 per USD on the black market, Goldman says.
Category: Venezuela
CAF Raises $100m on Reverse Interest
Regional development bank CAF clinched a $100m bond on the back of reverse inquiry Friday. The Venezuela-based lender was approached by single account and closed the deal in a one-day execution. The 2016 bond priced at three month Libor+85bp. Bank of America Merrill Lynch managed the transaction. CAF is rated AA minus/AA minus/A+.
Moody’s Negative on Venezuela
Citing political uncertainty related to President Hugo Chavez’s medical condition, Moody’s has lowered the outlook on Venezuela’s B2 rating to negative from stable. Concerns revolve around Chavez’s potential successor and that person’s ability to effect necessary economic stabilization, especially in the face of possible civil unrest. “Notwithstanding the government’s decision not to call new elections, as was arguably required by the constitution, a political transition appears to be imminent – if it is not underway already,” the agency says. The transition comes at a particularly challenging time for the Venezuelan economy, which experienced a marked deterioration in a number of key macroeconomic indicators last year, particularly the fiscal deficit, at 11% of GDP last year compared to 4% in 2011. Depending on the pace with which events progress, Moody’s adds that it could revisit the rating well before the 12-18 month time horizon normally associated with an outlook.
CAF Raises Tight CHF Funds
Corporacion Andina de Fomento (CAF) has raised CHF250m ($272m) in new 2021 bonds, pricing slightly inside its dollar curve, according to sources following the process. The Venezuela-based development bank priced at 100.094 with a 1.375% coupon to yield 1.363%, or mid-swaps plus 55bp, at the tight end of 57bp-area guidance. Bankers encouraged the multilateral to opt for a longer tenor as it would allow the issuer to gain more access to accounts outside of the private retail investor space. In the end, the 8-year transaction attracted a mix of asset managers and insurance companies with some participation from pension funds. Approximately 80 accounts were heard participating. It was CAF’s eighth CHF deal and its longest maturity and lowest coupon in the currency to date. Credit Suisse managed. Officials at CAF have previously said the bank continues to analyze the USD, EUR, GBP and JPY markets. CAF is rated AA minus/Aa3/A+ with stable outlook.
Vene Bonds Tighten on Chavez News
Venezuela’s bonds tightened Monday as Hugo Chavez hinted at the possibility he may be incapacitated due to deteriorating health and named Vice President Nicolas Maduro as his chosen successor. The benchmark 2027s tightened 100bp to 8.3%, according to Bulltick Capital. “A change at the presidential level could sustain the current downward trend in yields,” the shop says in a note, bringing Venezuela closer to single B credits including Ukraine (yielding 6.9%), Egypt (5.5%), and Mongolia (5.7%). Venezuela’s constitution states that if the president is incapable of being inaugurated, the president of the national assembly, Diosdado Cabello, would assume power until elections are called within 30 days. If the president is incapacitated after inauguration, the vp would take over, and also call elections. While the leadership outlook has changed somewhat, analysts find Chavez’s party would still have considerable strength without him. “In the short term, Venezuelan bond prices are likely to be well supported, as the market prices in more aggressively the “regime change” hypothesis. However, in the medium term, we expect more volatility and potentially downside to asset prices, as that hypothesis is far from a foregone conclusion,” Nomura says in a note. “We are of the opinion that any of the possible Chavez successors will be more moderate than Chavez, and we expect a transition in line with the constitution. Therefore, we reiterate our overweight call on Venezuela/PDVSA assets,” Barclays says in a note.
CAF Joins Dim Sum Club
Corporacion Andina de Fomento (CAF) is the latest borrower to tap the growing offshore Chinese renminbi (RMB), or Dim Sum, market, selling a CNH600m ($97m) 3-year bond. In becoming the region’s third issuer to sell a publicly placed Dim Sum bond, the bank continues to diversify funding sources outside of its well-established USD, EUR and JPY and CHF curves. The Aa3/ A+/A+ supranational lender priced at par to yield 3.55%, inside of 3.65% initial guidance. Demand hit approximately CNH1.2bn with 36 accounts participating, according to a source with knowledge of the transaction. Institutions accounted for 46%, insurance companies 20%, banks 12%, private banks 11% and other investor types 11%. Hong Kong represented 44% by geography, Taiwan 27%, Singapore 17%, Europe 9% and other Asian buyers 3%. Bank officials told LatinFinance in October that such a transaction would have to be competitive versus its dollar curve with issuance representing an opportunity for high grade investors looking for EM exposure in the A+ rated space. CAF has seen Dim Sum deals from the World Bank and IFC as pricing reference points. The bank has already finished its $2.5bn financing plan, with Wednesday’s opportunistic deal a means to secure pre-funding for 2013. It is also reaching new investor types that typically gravitate towards supranational paper, according to sources familiar with the deal, such as central banks and government-owned institutions. CAF has issued in six markets this year, including three Swiss Franc deals and private placement transactions in Germany. It is currently evaluating the Australian markets, where only Pemex has planted the LatAm flag, as a new source of funding. HSBC and Standard Chartered managed the transaction, the latest in a series of LatAm Dim Sum deals. Santander Chile, BTG Pactual and Bradesco have brought smaller, privately placed deals in recent weeks, with Bradesco returning Wednesday to raise CNH215m in 2014 bonds, pricing at par with a 3.90% yield,
CAF Eyes Dim Sum, AUD
Corporacion Andina de Fomento (CAF) is evaluating the offshore renminbi (RMB) and Australian markets as new sources of funding outside of its well-established USD, EUR and JPY and CHF curves, officials from the bank say. The regional development bank is considering a size reasonable for those markets, which should be 200m-equivalent or less with a tenor below 5-years. “There is appetite and we could offer interesting opportunities to high grade investors looking for EM exposure,” CFO Hugo Sarmiento tells LatinFinance, noting that a potential transaction would have to be competitive versus its dollar curve. Sarmiento says it could advance plans within the next couple of months and possibly meet investors, market conditions permitting. CAF has seen the World Bank’s and IFC’s Dim Sum deals, as offshore RMB is known, as interesting reference points. CAF has finished its $2.5bn financing plan, but does not rule out opportunistic trades as a prefunding method for 2013. The supranational is also expanding to new investor types that typically gravitate towards supranational paper like central banks and government owned institutions. CAF so far this year issued in six markets including three Swiss Franc deals and a couple of private placement deals in Germany.
Negative Outlook for Vene on Wide Chavez Victory
A wider-than-expected margin of victory for President Hugo Chavez in Venezuela’s presidential elections should mean increased pressure on Venezuelan assets, analysts say. With today the first session of open US markets following the election – which Chavez was estimated to have won by 10% – at least some degree of selloff was expected. “We expect a knee-jerk reaction of downward pressure on Venezuelan bond prices, and if President Chavez decides to deepen his ‘XXI Century Socialism’, we would expect Venezuela’s creditworthiness to erode further in the medium term,” Nomura says, noting the market had been positioning for a close election. “The victory by Chavez should weigh on Venezuelan bonds when U.S. markets reopen on Tuesday,” Citi says, expecting a 100bp-150bp widening. Others expect a smaller reaction. “It is difficult to expect much of a selloff considering that the closing credit spreads unwound most of the Capriles optimism as investors took profits ahead of the event,” Jefferies says, noting spreads had already unwound back to relative levels from when the elections were mostly viewed as a non-event.
Markets Ready to Move on Venezuela Result
Venezuela had yet to announce Presidential election results late Sunday night, with analysts expecting the market reaction to depend both on the margin of victory and the behavior of the loser. “If [President Hugo] Chavez wins and the differential is very tight, the selloff might be contained. If Chavez wins by a wide margin, there could be a more pronounced selloff,” Boris Segura, economist at Nomura, tells LatinFinance ahead of the election. A victory by opposition candidate Henrique Capriles would likely mean a tightening of Venezuela and PdVSA credit spreads. Venezuela CDS could tighten 150bp-200bp on a Capriles victory, Segura says. The downside of a Chavez victory on CDS would likely be smaller, perhaps 50bp-100bp widening, he adds. Venezuela CDS Spreads were around 700bp Friday. It was difficult for analysts to establish a base-case scenario, with the polls in the country giving diverging indications leading up to the election. “The market has to some extent already priced a Chavez victory,” Goldman Sachs says in a report. “We would have to assume that the past week of credit spread tightening unwinds on the disappointment of a Chavez victory of around 50bp-100bp to 800bp-850bp on 5-year CDS,” Jefferies says in a report. The alternative scenario could mean credit spreads tightening 200bp towards 500bp on 5-year CDS, it adds. Results were expected late Sunday night, with local news reporting extended voting hours due to heavy turnout.