Nathan Crooks · @nmcrooks
1st Apr 2013 from TwitLonger
Post-Chavez Rout Deepens on Venezuela Bond Sale Speculation: Andes Credit
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Post-Chavez Rout Deepens on Bond Sale Speculation: Andes Credit
2013-04-01 13:30:28.325 GMT
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By Nathan Crooks and Corina Pons
April 1 (Bloomberg) -- Venezuelan bonds are extending
losses as investors bet the government will be forced to resume
dollar debt offerings this year to arrest a record decline in
the bolivar in the black market and maintain high spending.
Oil exports won’t provide enough greenbacks to supply a new
exchange system started last week and meet $8 billion in
payments on outstanding debt, said Jorge Piedrahita, the
president of Torino Capital LLC. Venezuela’s dollar debt lost
2.7 percent in March compared to returns of 0.6 percent for
Argentina, 0.7 percent for Ecuador and 1.4 percent for Bolivia,
according to JPMorgan Chase & Co.’s EMBIG index.
Stalled revenue growth at state oil company Petroleos de
Venezuela SA and rising debt will pressure the country to return
to capital markets for the first time in a year, said
Piedrahita, who correctly predicted in February that Venezuelan
bonds wouldn’t rally upon the death of President Hugo Chavez.
Pressure on the new administration of acting President Nicolas
Maduro for increased spending will also add to calls for renewed
bond sales, he said.
“All paths are leading the government to make several
issuances this year,” Piedrahita said in a March 27 telephone
interview. “The government will need to look for other
resources to meet important payments on existing debt.”
The yield on the government’s benchmark 9.25 percent
securities due in 2027 has risen to 9.47 percent from 8.89
percent since March 4, the day before Chavez’s death was
announced.
‘More Chavez’
The Finance Ministry auctioned $200 million through the new
exchange system on March 27, while declining to say how often or
how much it would sell in future. The central bank provides the
system with dollars, in contrast to a previous market closed in
February that relied in part on dollar debt issues.
The bolivar has declined about 24 percent on the black
market this year, according to Dolar Today, a website that
tracks the exchange rate on the Venezuelan border with Colombia.
The currency currently trades at about 23 per dollar on the
black market, compared with 6.3 on the Cadivi system reserved
for importers of essential items, such as medicine.
Toothpaste Shortages
Failure to supply the market with enough dollars will
exacerbate shortages of everything from toothpaste to beef in a
country that sits atop the world’s largest oil reserves.
The government’s continued control over the currency market
is the latest sign that Maduro won’t moderate the socialist
policies backed by Chavez as he prepares for elections April 14.
“Maduro may be more Chavez than Chavez,” Siobhan Morden,
the head of Latin America fixed income strategy at Jefferies
Group Inc. in New York, said in an e-mailed response to
questions, adding that she was neutral on Venezuelan debt.
“There is still risk of new issuance since there is still a
structural deficit on the balance of payments and insufficient
petrodollars to fund imports.”
Maduro has pledged to continue policies that saw the
seizure of more than 1,000 companies or their assets since 1999,
imposed price caps on consumer products and restricted currency
trading. The result has been mounting shortages and the second-
fastest inflation among 102 economies tracked by Bloomberg.
$7.9 Billion
The Venezuela government and PDVSA, as the Caracas-based
oil company is called, have interest and principal payments
totaling $7.9 billion this year for their dollar debt, according
to data compiled by Bloomberg.
PDVSA last sold dollar debt in May 2012, while the
government hasn’t issued dollar bonds since 2011. The South
American nation will maintain its preference for issuing local
debt over foreign debt this year, Finance Minister Jorge
Giordani said on Dec. 27.
“In 2012, the debt that increased was local debt,”
Giordani said. “We are going to maintain that policy next
year.”
Many banks still expect Venezuelan dollar debt to resume a
rally that saw it return 47 percent last year on speculation
that a post-Chavez government would be friendlier to foreign
investment.
Bank of America Corp., JPMorgan and Barclays Plc all
maintain overweight recommendations on the debt. The fact that
the government’s new system of dollar auctions, known as Sicad,
uses cash and not bonds to meet demand for foreign currency is
“credit positive,” Ben Ramsey, an analyst at JPMorgan, said in
a March 19 note to clients.
‘Costly Policy’
“Venezuela finally seems to have turned away from the
costly policy of using high-coupon USD bonds to supplement FX
demand,” he said. “The use of cash over bonds is - finally - a
nod to sustainability.”
PDVSA may struggle to meet demand for dollars though. The
company’s revenue fell to $124.4 billion in 2012 from $124.8
billion in 2011 even as the average oil price for its exports
increased, Oil Minister Rafael Ramirez said on March 22. Profit
decreased to $4.2 billion from $4.5 billion over the period.
At the same time, PDVSA debts with suppliers increased 35
percent to $16.7 billion last year.
The decline in revenue is “not important,” Ramirez said,
attributing the decrease to rising sales of subsidized fuel on
the domestic market. Venezuela’s oil exports averaged $103.42 a
barrel last year, compared with $101.06 in 2011, according to
the Oil Ministry’s website.
“PDVSA’s results were disastrously bad - even at a time of
the highest oil prices ever - and the bond market is wary of
that,” said Russell Dallen, the head trader at Caracas Capital
Markets in Miami.
Yield Spread
The extra yield investors demand to own Venezuelan dollar
bonds instead of U.S. Treasuries fell four basis points, or 0.04
percentage point, to 793 basis points at 9:18 a.m. in New York.
The spread rose last week to the widest since Dec. 7, according
to JPMorgan.
The cost to insure Venezuelan debt against default for five
years increased one basis point to 740 basis points, almost the
highest level since Nov. 26, according to data compiled by
Bloomberg.
“Low cash levels, high fiscal deficit, elevated imports
and some financing needs point to bond debt issuances later this
year with subsequent bond price weakness,” Piedrahita said in a
March 25 note to clients.
Maduro, who on March 21 threatened currency “speculators”
with jail, had 53.1 percent support compared with 35.6 percent
for opposition candidate Henrique Capriles Radonski ahead of the
April 15 elections, Jorge Rodriguez, head of Maduro’s campaign,
said March 26 on state television.
“How beautiful is socialism,” Maduro, 50, said on March
25 at a rally broadcast on state television. “It’s the kingdom
of Christ on earth and capitalism is the kingdom of Lucifer.
What it generates is misery, hunger and violence.”
For Related News and Information:
Top Stories: TOP <GO>
Venezuela economic snapshot: ESNP VZ <GO>
Venezuela government bonds: VENZ <CORP> <GO>
Venezuela economy snapshot: ESNP VE <GO>
Venezuela international reserves: VNRS <INDEX> GP <GO>
Venezuelan annual inflation: VNVPIYOY <INDEX> HCP <GO>
Venezuelan annual growth graph: VNGGYOY <INDEX> GP <GO>
Venezuela oil news: STNI VENEZOIL <GO>
Venezuela crude oil basket: CRVZVZBK <INDEX> HCP <GO>
Petroleos de Venezuela assets: PDVSA VC <Equity> GCAS <GO>
BP statistical review year-end oil reserve figures BPSR 1 <GO>
--With assistance from Jose Orozco in Caracas. Editors: Philip
Sanders, Bill Faries