January 10, 2007

Venezuelan bond risk fears may be overblown – analysts

Filed under: Venezuela — rdrutherford @ 7:13 pm

Venezuelan bond risk fears may be overblown – analysts
Marketwatch – January 10, 2007 1:11 PM ET
Related Quotes
Symbol Last Chg
VNT Trade 14.70 +2.50
Real time quote.
NEW YORK (MarketWatch) -Venezuelan President Hugo Chavez’s plans to nationalize key industries has sparked a sell-off in the nation’s bonds, but investors may be exaggerating the political risk, analysts said Wednesday.

Heavy selling has pushed the yield on the nation’s most heavily traded 34-year bond, due in 2034, up to 7.06% on Wednesday from 6.70% a week before, according to Ricardo Amorim, head of Latin American research for WestLB in New York City. Prices and yields move in opposite directions.

Venezuelan bonds and stocks have been under pressure this week, partly due to Chavez’s vow to nationalize the nation’s biggest phone company, CANTV (VNT). See full story.

Chavez said his government is also planning to nationalize the electricity sector. The president has already introduced protectionist measures in the oil industry.

“Despite increased risk that bondholders will become the next target, we think that willingness to pay will remain high,” said UBS economists Javier Kulesz, Catherine Agnelli and David Treiger.

They predicted the government’s liquidity position will remain strong relative to its debt obligations.

“The Chávez administration has been an active market player, both as a borrower from the market and as a lender to regional countries, and it is unlikely to want to erode these abilities by advancing market unfriendly initiatives,” the economists wrote in a research note.

“There is little short-term [default] risk but the medium- and long-term risk has increased,” said WestLB’s Amorim.

Venezuelan debt has also been hit this week by a sharp slide in crud- oil futures, said Amorim. See crude story.

Venezuela’s debt is extremely sensitive to fluctuations in energy prices because oil accounts for 25% of the economy, 85% of exports and 50% of government revenue, he said.

Amorim said his institution is expecting the drop in crude prices, which has resulted in part from unseasonably warm weather in much of the U.S., to stabilize soon.

“I would not buy Venezuelan bonds at this point,” he said. “But we may be near the end of the crude slide and that would make bonds more attractive.”


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