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Investors seek bargains in wake of Venezuela debt sell-off
09 September 2014 By Paul Kilby
(IFR Reuters)
Investors are looking for bargains along Venezuela’s curve as some bet that a self-off in the sovereign’s debt on default talk was excessive.
The sovereign’s 2024s fell about 3.5 points to 65.00–66.00 today, marking a five point drop since last Tuesday. It was a similar story for bonds issued by state-owned oil company PDVSA, whose 2024s were ending the day at 52.50–53.00.
Today’s rout came in response to an article written by Venezuelan academics exploring the possibilities of a default in the oil rich nation. It also follows a similar dip in prices last week when market favourite Rafael Ramirez was ousted from his post as head of the country’s economic team and president of PDVSA.
“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.
Piedrahita likes bonds with low dollar prices such as PDVSA’s 2024s, 2026 and 2027, which in the 50s are close to recovery value.
Barclays analysts also think now is the time to snap up Venezuela debt, making parallels with a similar selloff in February that resulted in “one of the best buying opportunities of the year”.
The British bank notes that yields on bonds issued by Argentina and Ukraine, which are in default and at war respectively, were tighter than on Venezuela debt.
While the oil rich nation can generate substantial dollar revenues, much of that goes to cover local gasoline subsidies as well as cheap oil exports to Cuba and other Caribbean nations. If push came to shove, however, the government is likely to rein in handouts to avoid a default that would cost it dearly, argues Barclays.
“Just the financing that Venezuela gives to Petrocaribe countries would be more than enough to pay for the average yearly bond maturities of both Venezuela and PDVSA,” it said. “We doubt any government in Venezuela would prefer to take the cost of a default to keep afloat other countries.”
Still some market participants are expressing concerns that politics may overshadow such logic after the appointment of more left leaning cabinet members last week.
And with President Nicolas Maduro sinking in the polls ahead of legislative elections next year, some market participants see the window closing on opportunities to make necessary, albeit unpopular, changes to economic policies.
“Perhaps the worst alternative for bondholders is financing import populism with a decline in scarce external assets (FX reserves and non-reserve assets) or with bond issuance or with the sale of (PDVSA’s) Citgo (in the US),” wrote Siobhan Morden, head of Latin America strategy at Jefferies.
Investors seek bargains in wake of Venezuela debt sell-off | Capital City | IFRe
09 September 2014 By Paul Kilby
(IFR Reuters)
Investors are looking for bargains along Venezuela’s curve as some bet that a self-off in the sovereign’s debt on default talk was excessive.
The sovereign’s 2024s fell about 3.5 points to 65.00–66.00 today, marking a five point drop since last Tuesday. It was a similar story for bonds issued by state-owned oil company PDVSA, whose 2024s were ending the day at 52.50–53.00.
Today’s rout came in response to an article written by Venezuelan academics exploring the possibilities of a default in the oil rich nation. It also follows a similar dip in prices last week when market favourite Rafael Ramirez was ousted from his post as head of the country’s economic team and president of PDVSA.
“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.
Piedrahita likes bonds with low dollar prices such as PDVSA’s 2024s, 2026 and 2027, which in the 50s are close to recovery value.
Barclays analysts also think now is the time to snap up Venezuela debt, making parallels with a similar selloff in February that resulted in “one of the best buying opportunities of the year”.
The British bank notes that yields on bonds issued by Argentina and Ukraine, which are in default and at war respectively, were tighter than on Venezuela debt.
While the oil rich nation can generate substantial dollar revenues, much of that goes to cover local gasoline subsidies as well as cheap oil exports to Cuba and other Caribbean nations. If push came to shove, however, the government is likely to rein in handouts to avoid a default that would cost it dearly, argues Barclays.
“Just the financing that Venezuela gives to Petrocaribe countries would be more than enough to pay for the average yearly bond maturities of both Venezuela and PDVSA,” it said. “We doubt any government in Venezuela would prefer to take the cost of a default to keep afloat other countries.”
Still some market participants are expressing concerns that politics may overshadow such logic after the appointment of more left leaning cabinet members last week.
And with President Nicolas Maduro sinking in the polls ahead of legislative elections next year, some market participants see the window closing on opportunities to make necessary, albeit unpopular, changes to economic policies.
“Perhaps the worst alternative for bondholders is financing import populism with a decline in scarce external assets (FX reserves and non-reserve assets) or with bond issuance or with the sale of (PDVSA’s) Citgo (in the US),” wrote Siobhan Morden, head of Latin America strategy at Jefferies.
Investors seek bargains in wake of Venezuela debt sell-off | Capital City | IFRe
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