Value in Venezuela, say analysts
A sell-off in Venezuelan sovereign bonds offers a buying opportunity, analysts say
Venezuelan sovereign bonds still present upside, analysts
have said after investors dropped the bonds in large numbers
The country has the ability and willingness to continue
servicing is international obligations, analysts said, despite
a growing lack of faith in the government’s
Worries about Venezuela’s liquidity were
"misplaced", said Bank of America Merrill Lynch analysts.
"There is remarkably little in the data to suggest that
Venezuela’s liquidity position is any different
than what it has been during most of the past four years. We
thus expect the sell-off to revert as Venezuela’s
capacity to service its debt obligations becomes clear."
Venezuela’s 2027 bond slipped around 10 points,
to just under 80 cents, at the end of September, according to
data from the bank. The bond had been trading around par
earlier in the year.
A default is unlikely in the short run, said analysts at
"The policy paralysis does not suggest a near-term credit
event unless authorities draw down their stock of external
liquidity (which would take around three years of import growth
similar to 2012 to reach three months of import coverage)," the
analysts said Monday.
"Venezuela still benefits from 10 months of import coverage
(including non-reserve assets) and only slow decline in FX
The fall in Venezuelan bond prices last week was a result of
policymakers’ inaction on introducing a new
exchange rate regime, as well as more general investor unease
over macroeconomic policies, Jefferies analysts said.
Nelson Merentes was replaced as economy vice-president this
week, according to media reports Tuesday, replaced by Rafael
Ramírez, the minister of petroleum and mining. Merentes
had been central bank governor until April, when he was moved
to the finance ministry.
The short stint in the position raises uncertainty over
economic policymaking, Barclays said. Edmée Betancourt,
who replaced Merentes in the central bank in April, was herself
replaced in August.
"Given the very short tenure of the persons designated to
those positions, it is very hard to understand how the
decision-making process inside the government is taking place,"
Still, Ramírez’s expanded role is
positive as it will allow him to increase private investment in
oil, Barclays said. The bank also expects that Venezuela can
continue to pay.
"Despite the negative trend in Venezuela’s
fundamentals, we still think the country has the capacity to
service its debt," the bank said. "Even if it is increasingly
sensitive to a decline in oil prices, the oil market outlook
remains supportive." LF