Torino Says `Good Likelihood' Venezuela Election Brings Change
By Ben Bartenstein
(Bloomberg) -- There’s a "good likelihood" this year’s presidential election will bring a change of govt that leads to a complete revamp of economic policies, Torino Capital chief economist Francisco Rodriguez writes in report.
Most probable scenario is opposition victory with some negotiation to include elements of chavismo
Alternative scenario is governing party stays in power, perhaps due to noncompetitive race, but proceeds with macro stabilization program
Economic stabilization, especially if accompanied by govt change, will be conducive to rapid growth recovery
Says increased signs govt is prioritizing PDVSA bond payments considering 5.375% 2027, 8.5% 2020 and 8.5% 2017 bonds that entered into default have been paid
On average, coupon payments for those bonds spent 14 days in default, much lower than sovereign bonds currently in default
VENZ 2019s and VENZ 2024s now in default for 57 days
Continued selective default must be taken seriously as PDVSA debt service amounts to "manageable" $2.9b in 2018 and $3.7b in 2019
Nation poised to enter world’s first hyperinflation in past decade
Forecasts inflation to accelerate to 10,554% from 2017 year-end estimate of 1,001%
Although oil production will probably fall another 501,000 bd this year, higher prices will help stabilize export revenue
Expects exports to fall to $28.7b from $31.8b
Default on some obligations will allow country to run lower current account surplus of $4.6b in 2018 vs $7b last year
Sees GDP contraction of 2.5% this year after dropping 12.9% in 2017
Estimates 28.4% of the $64.4b in Venezuelan debt is held by local entities, while the remaining 71.6% is held by foreign entities
Sees equity value of CITGO at $4.8b
Since $3b of debt is secured by 100% of Citgo Holding shares, potential residual value from selling Citgo is $1.8b
Estimates total stock of liquidatable assets at $21.5b by end of 4Q17
Foreign reserves ($9b), trade credits ($3.8b), foreign currency bonds under public control ($3.4b), Chinese Fund holdings ($1.4b)
Of foreign reserves, $7.3b is in gold, largely stored in central bank vaults, while $1.2b is in SDRs and rest in cash
Sees recovery ratio of 26% of face value, revised down from 37% in 3Q17Related ticker:
