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.
Category: Venezuela
Venezuela Cancels Crystallex Contract
Canadian miner Crystallex International says that the Venezuelan government has cancelled its mine operating contract (MOC) for the Las Cristinas gold project. The government cites Crystallex’s lack of progress on Las Cristinas for more than a year and “for reasons of opportunity and convenience” as reason for the termination. However, Crystallex says it has complied with all the obligations stated in the MOC. It also says that in June 2007, the government confirmed approval of the project’s environmental impact study, the posting of the construction guarantee bond and the payment of the environmental disturbance taxes. However, the local environmental ministry denied the request for the environmental permit in April 2008. Crystallex signed the MOC in September 2002. The contract granted Crystallex exclusive rights to develop and exploit the gold deposits on the Las Cristinas property. The miner raised CAD35m in June to finance the development of the project. Crystallex says it is considering all steps necessary to protect its investment, including filing an international arbitration claim. Las Cristinas was Crystallex’s only asset.
PDVSA Gets 18% in Swap
Bondholders agreed to swap $549.9m (18.3%) of PDVSA’s 2011 bonds in an exchange offer that closed Friday, the state-owned Venezuelan oil company says. In return for the zero-coupon 2011 bonds, PDVSA will issue $618.7m in 8.0% of 2013s. It had offered $1,125 per $1,000 if done by October 28, and $1,095 per $1,000 if done after. There are now $2.45bn 2011 bonds outstanding, PDVSA says. Citi managed the process. PDVSA also sold $3.0bn in new 8.5% 2017s last month, and is heard looking to place another $1.0bn-$1.5bn of new bonds, according to Credit Suisse.
Chavez Plots State-Run Bolsa
Venezuela’s government plans to create a state-run stock and bond exchange, according to wire reports citing television remarks from president Hugo Chavez. The public market, which will begin operations in December, would allow state-run companies to sell securities with investments being guaranteed by the state, Chavez reportedly says. Earlier this year, the government closed more than a dozen banks and 40 brokerages that it said committed fraud and set artificial exchange rates. Separately, a new bond issue from PDVSA could be in the works, according to Credit Suisse. “We heard continuous discussion of the possibility of another $1.0bn-$1.5bn of new PDVSA bonds placed with the central bank,” it says.
CAF Goes Back to Euros
CAF is set to meet European investors today and tomorrow, with the aim of issuing a euro-denominated bond. No terms have been announced, investors say, noting that BNP and HSBC are managing the process. The Andean multilateral lender sold EUR100m in 2015 floating-rate bonds in February through Goldman Sachs, according to Dealogic, its first euro-denominated deal since a EUR300m 2006 offer.
PDVSA Reported Turning Off Bond Spigot
Venezuelan oil minister and president of PDVSA, Rafael Ramirez, says PdVSA does not plan to issue debt in 2011, according to Goldman Sachs, which does not state the source of the information. It adds that the company could offer another swap of the 2011 Petrobonos. “PDVSA and the Treasury have been issuing large amounts of dollar-denominated debt not only due to genuine financing needs but to a large extent to satisfy the large pent-up demand for dollar assets and pressure on the VEB to weaken,” says Goldman.
Sidetur on Negative Watch
Fitch has placed Sidetur on rating watch negative. The announcement follows the announcement Sunday by the Venezuelan government that it would nationalize the steel company. Fitch rates Sidetur’s $100m 10% senior unsecured notes due 2016 issued through its wholly-owned subsidiary Sidetur Finance. The negative watch reflects the uncertainty regarding the exact time by which the nationalization will be completed and its impact on the company’s operations during this process. This uncertainty will negatively affect labor productivity and the fluidity of day-to-day relationships with the company’s suppliers, customers and banking institutions that provide it with working capital financing.
China Latin America Links Proliferate
Cultural barriers remain, but the China-LatAm relationship is starting to blossom. Both sides hope to convert dialogue into more frequent large transactions.
Best Bank – Venezuela
Mercantil Banco Universal has been expanding its loan portfolio, which has led to year-on-year growth despite a economic contraction and slow liquidity growth in Venezuela.
Best Multilateral
Corporación Andina de Fomento (CAF) may be 40 this year, but it shows no signs of slowing.