Salient to Investors:
Venezuela bondholders have returned 14.7 percent annually, double the emerging-market average, enriching investors from OppenheimerFunds to Goldman Sachs.
Sara Zervos at OppenheimerFunds said Chavez has done little good for Venezuela, but has serviced the bonds, and the Venezuelan securities are more attractive than Brazilian bonds, which offers little upside. Zervos said there’s still significant cushion and ability to pay, so spreads can compress more.
Russell Dallen at Caracas Capital Markets said Venezuela’s benchmark bonds are unlikely to replicate the gains of the past decade once the rally drives yields down closer in line with regional peers.
Standard & Poor’s said Venezuela’s net government debt is 22 percent of GDP, lower than the median 36 percent among similar-rated countries.
Sam Finkelstein at Goldman Sachs Asset Mgmt said the story has been deteriorating, but Venezuela will continue to pay their debt – the situation has to be much tighter, more fragile to trigger a default. Finkelstein is modestly overweight in Venezuelan bonds as the economy will improve after Chavez relinquishes power, and should the opposition win presidential elections, the extra yield of Venezuela bonds over Treasuries will narrow to 5 percent, levels similar to Ukraine. Finkelstein said investors are expecting a regime change to a more pragmatic and less idealist government.
Venezuelan bonds accounted for 6.7 percent of the Goldman Sachs Growth & Emerging Markets Debt Fund, its third-biggest investment.
Simon Nocera at Lumen Advisors said Chavez paid off the debt because non-payment would lead creditors to seize Venezuelan oil shipments, half of government revenues, and freeze Venezuelan assets overseas, including refineries and gas stations of Citgo.
JPMorgan Chase say the average yields on Venezuelan bonds are the lowest since January 2008, but at 9.04 percent are still double the emerging-market average of 4.49 percent. Venezuela’s 5-yr credit-default swaps indicate a 35 percent chance it will default by 2018.
Latin American countries including Brazil, Panama and Peru rewarded bondholders with gains fueled by economic growth, slowing inflation and surging foreign reserves.
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