Some investors confident as $3 billion Venezuela debt payment looms
| NEW YORK/LONDON
Venezuela will likely stay current on its debt and make about $3 billion in payments next week, according to some investors and bondholders, voicing guarded optimism even amid worsening turmoil for the country.
Venezuela bond bulls have come under pressure since the country's Supreme Court stripped all powers from its Congress in a ruling last week, a power grab that drew widespread condemnation and sent its traded debt to nine-month lows, even sinking after the court reversed the move.
So far, betting on Venezuelan bonds has tended to pay off for investors able to separate the government's steady ability to honor payment deadlines from widespread concern about its stability and economic stewardship.
"We still have a buy recommendation on the PDVSA April maturity and the longer sovereign bonds and PDVSA bonds, but we have to revisit that every day as the news comes out," said Stuart Culverhouse, head of research at Exotix Partners, a London-based investment firm for frontier and illiquid markets.
Optimism about Petroleos de Venezuela SA, better known as PDVSA, coming up with the $2.55 billion in cash it owes on April 12 is not universal. Venezuela also needs to pay $437 million in interest due on its sovereign bonds.
Credit default swaps, which investors buy as insurance against a bond defaulting, widened to 61.5 percent on Monday, indicating the highest risk level on the PDVSA bonds since December.
In recent days, PDVSA has realized it needs help from its Russian counterpart to be able to meet its hefty April payments, sources told Reuters on Friday.
Also adding to investors' concern is the paucity of economic and other data coming out of the OPEC nation, which has the world's biggest crude oil reserves.
"Venezuela hasn’t published growth numbers since the third quarter of 2015 print – we’re driving blind here," said Alejo Czerwonko, an emerging market strategist at UBS Wealth Management.
The price on Venezuela's benchmark $4 billion bond maturing in September 2027 with a 9.25 percent coupon slid during last week's political crisis and fell further this week.
The bond's yield, which moves in the opposite direction of price, has risen to nearly 24 percent, the highest since June 20.
Still, the bonds' lofty interest rates and Venezuela's record of consistent debt payments, even in the face of crippling food shortages, lackluster oil prices and mass public unrest have kept investors coming back for more.
"It's a country that does offer very solid returns and has the potential to be a much higher rated country in the future," said Shamaila Khan, director of emerging markets fixed income at AllianceBernstein in New York, who recently returned from a trip to the country.
Khan declined to say whether AllianceBernstein was planning to make any changes to its holdings of Venezuelan debt.
Confidence in Venezuela meeting its debt obligations was driven, at least in part, by the reliance of President Nicolas Maduro on capital markets to keep his government in power, UBS's Czerwonko said.
“What is bad for the country is not that bad for the bondholders – the current regime is committed to servicing the external debt of Venezuela and PDVSA," said Shahzad Hasan, portfolio manager emerging markets fixed income at Allianz Global Investors.
“If anything I was more worried about default in the previous two years than I am this year," he said.
(Reporting by Dion Rabouin; Editing by Christian Plumb and Tom Brown)
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