Venezuela Bond Exodus Accelerates on Spurned Devaluation
Concern is deepening that Venezuelan President Nicolas Maduro isn’t moving fast enough... Read More
Bond investors are abandoning Venezuela as President Nicolas Maduro’s administration signals the nation doesn’t intend to devalue the currency with sinking oil prices undermining its ability to pay debt.
The country’s $4 billion of dollar-denominated debt due 2027 plummeted to an almost six-year low of 55.10 cents on the dollar yesterday after Finance Minister Rodolfo Marco Torres said this week that there’s “no devaluation planned.” The securities have fallen 14.1 percent this month, posting the biggest drop inemerging markets over that span.
Concern is deepening that Maduro isn’t moving fast enough to bolster the nation’s finances at a time when the price of its oil, which accounts for about 95 percent of Venezuela’s exports, has plunged 28 percent since June to a four-year low. A devaluation would give the government more bolivars for each dollar of export revenue from state oil monopoly Petroleos de Venezuela SA and narrow its price gap in the black market, where the local currency is 94 percent cheaper.
“It’s the combination of oil prices going where they have, as quickly as they have, and the continuing dithering on the part of the authorities,” Marco Santamaria, a money manager at AllianceBernstein LP, which oversees $25 billion in emerging-market debt, said by telephone from New York. “There’s broad understanding that in the absence of any corrective policy measures that these guys are going to be in serious trouble.”
‘Trust Us’
The press offices of Venezuela’s Finance Ministry and Information Ministry didn’t respond to interview requests seeking comment on the country’s bonds and its currency policy.
“We’ll continue to work with the official rate,” Marco Torres said in a televised interview on Caracas-based network Televen on Nov. 9. “We’ve told investors to count on Venezuela, to trust us.”
Speculation over the potential devaluation increased after Torres said in an interview with El Universal newspaper on Oct. 26 that the government was reviewing its exchange-rate polices.
The official rate of 6.3 bolivars per dollar compares with a black-market rate of 113.62 bolivars, according to dolartoday.com, which tracks the rate on the Colombian border.
The need to devalue is becoming more acute after the price for Venezuela’s export oil basket fell to $72.80 a barrel in the week ending Nov. 7, the lowest since October 2010, according to the most recent data from the Energy and Petroleum Ministry.
Yields Soar
Yields on Venezuela’s 2027 bonds have now soared 3.19 percentage points over the past seven trading sessions to 18.51 percent, the highest since February 2009, data compiled by Bloomberg show.
The extra yield investors demand to hold Venezuelan bonds instead of Treasuries soared to a 16-year high of 19.03 percentage points yesterday.
The upfront cost to buy protection against a default for five years with credit-default swaps has jumped 11.1 percentage points this month to 46 yesterday, the most expensive in the world.
Risa Grais-Targow, an analyst at Eurasia Group, a political risk firm based in Washington, says Maduro will probably devalue the bolivar next year. Taking action now may cost him politically, she said. The president is facing declining popularity, the world’s fastest inflation at 63 percent and shortages of consumer goods from soap to car batteries.
‘Grain of Salt’
“Finance Minister Marco Torres’s statements ruling out a devaluation should be taken with a grain of salt,” Grais-Targow said Nov. 11 in a report to clients.
Investors have become increasingly concerned that Venezuela is running out of cash to pay its debt as its foreign reserves sink to an 11-year low of $19.6 billion, and its economy -- according to the International Monetary Fund -- heads for its biggest contraction since 2009.
“Marco Torres’s comments didn’t go down too well with the market,” said Francisco Ghersi, managing director of Knossos Asset Management, which owns Venezuelan bonds. “Investors are exasperated by the government’s failure to take any measures in response to falling oil prices.”
To contact the reporters on this story: Nathan Gill in Quito at ngill4@bloomberg.net; Katia Porzecanski in New York at kporzecansk1@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net Lester Pimentel, Robert Jameson
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