12 de septiembre de 2014 / 16:28 / hace 3 años

CORRECTED-Venezuela rout turns into opportunity

(Corrects size of debt maturities in 2017 to US$5bn)

By Paul Kilby and Davide Scigliuzzo

NEW YORK, Sept 12 (IFR) - Venezuelan bonds came under pressure this week as talk of a potential default spooked the markets, causing the sovereign’s curve to plunge several points before buying interest returned.

The country’s 2024s fell about 3.5 points to 65.00-66.00 on Monday, marking a five-point drop in four days. It was a similar story for bonds issued by state-owned oil company PDVSA, whose 2024s touched a low of 52.50-53.00 on the same day.

The rout was triggered by an article written by two Harvard academics - a former Venezuelan minister and an ex advisor for the opposition - questioning whether the government should service its international bonds when it is not honouring other commitments at home and has left citizens scrambling for basic goods.

Looming debt payments in October totalling some US$4.5bn between the sovereign and PDVSA only served to heighten concern around Venezuela, which faces another US$5bn spike in maturities in 2017.

The sell-off came on the heels of a similar dip in prices caused the week before by a cabinet reshuffle in which market favourite Rafael Ramirez was ousted from his post as head of the country’s economic team and president of PDVSA.

The move towards a more left-leaning administration dashed hopes that the government would act to tackle its deteriorating fiscal situation ahead of legislative elections next year.

However, as spreads on the sovereign approached highs seen earlier this year, and yields on some instruments reached close to 20%, some market participants saw buying opportunities.

“There has been some capitulation, but we see this as an opportunity to start taking positions,” said Jorge Piedrahita, chief executive officer at Torino Capital, a brokerage firm focusing on distressed debt in emerging markets.

Venezuela’s Minister of Finance Marco Torres sought to restore confidence on Wednesday, reassuring investors that the country had the ability to meet its commitments.

MANAGEABLE

While well aware of Venezuela’s risks and severe macroeconomic imbalances, some in the market stress that risks in the country are much more manageable than in other high-yielding nations such as Argentina and Ukraine.

“Out of the three, Venezuela is the one with the better chance of resolving the stress, in the sense that at least it’s still in charge of its destiny,” said Gorky Urquieta, co-head of emerging markets debt at Neuberger Berman, which has just increased its exposure to the country.

Barclays analysts also believe now is the time to snap up Venezuela debt, making parallels with a similar sell-off in February that resulted in “one of the best buying opportunities of the year.”

The British bank also noted that yields on bonds issued by Argentina and Ukraine, which are in default and at war respectively, were tighter than those on Venezuela’s debt.

LOOKING ELSEWHERE

Yet while emerging markets investors have long relied on the so-called “Toxic Trio” of Argentina, Ukraine and Venezuela to spice up returns, the rise of unpredictable risks in these jurisdictions could cause some to seek returns elsewhere.

Smaller sovereigns that still offer above-average returns in the high-yield segment of JP Morgan’s EMBI Global Diversified index, for example, could stand to benefit.

“One of the areas where people could seek to outperform the index is a selection of small-cap, high-yield credits like Belize, Ghana, Mongolia and Pakistan,” said Michael Roche, emerging markets strategist at boutique investment firm The Seaport Group.

In a week in which several new issues faced a tepid reception, Ghana put this notion to the test by successfully raising US$1bn through a new 12-year amortising bond issue that was priced at a yield of 8.25% on the back of US$3bn in demand.

In Latin America, El Salvador fared even better, collecting US$4.6bn in orders for its US$800m sale of 12-year notes at a yield of 6.375%.

“Every time you unwind a position you are going to revisit countries that you like or see warming up because you have freed up some risk budget in the portfolio,” said Neuberger Berman’s Urquieta. “But that is only relevant to the extent that there is a story that has merit on its own.”

Reporting by Paul Kilby and Davide Scigliuzzo; Editing by Matthew Davies

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