jueves, 20 de septiembre de 2012

Reuters 15:38 13/09/2012 Reuters: Venezuela a safer bet for investors if Capriles wins-opposition


    * Venezuela bond yields are now among the world's highest
    * Capriles vows to put country on sustainable financial path
    * His economic guru sees spreads tightening up to 300 bps
    * Market pans Chavez policies, but he has never defaulted

By Hugh Bronstein

CARACAS, Sept 13 (Reuters) - Venezuela's sky high borrowing costs would fall by up to 3 percentage points and remove pressure from overstrained public finances if market-friendly candidate Henrique Capriles wins next month's presidential election, a top aide said. The country's bond yields are among the world's highest,
reflecting a sharp probability of default despite the advantage of sitting atop the world's biggest oil reserves at a time of tight global supplies and $100 per barrel prices.

Socialist President Hugo Chavez's seizure of private companies and Byzantine system of price and currency controls are frowned on by investors. But he has never defaulted during his 14 years in office, rewarding debt holders with three times the annual income offered by average emerging market bonds. As sweet as this has been for buy-and-hold portfolio managers who bet correctly that "El Comandante" Chavez would pay on time despite his anti-capitalist rhetoric, his policies have put a burden on public finances that Capriles vows to relieve.

The 40-year-old challenger, who is governor of Venezuela's second most populous state, a ims to put the economy on a sustainable course by improving transparency and production at state oil company PDVSA. A l aw graduate, Capriles vows to replace inefficient subsidies with infrastructure projects and induce private sector investment by carrying out no further  nationalizations.

Chavez, 58, leads most of the best-known polls, but they are notoriously controversial and divergent in this polarized country. One major polling firm puts Capriles ahead. If Capriles wins the Oct.7 vote, his policies will quickly translate into higher credit ratings and cheaper financing for Latin America's top oil exporter, his macro-economic policy coordinator Miguel Angel Santos said . "Our strategy is based on unleashing Venezuela's productive potential, both in the oil and non-oil sectors," Santos, an investment banker and corporate finance expert, told Reuters. "We are aiming at a reduction of 200 to 300 basis points on sovereign risk over the first twelve months of a Capriles government," he added.

Nailing that target would lower the cost of long term borrowing to 8 percent from 11 percent currently. Venezuela's bond due in 2027 yields 10.9 percent versus 4.7 percent offered by equivalent Colombian paper.
     
SKY HIGH SPREADS

Lenders demand high yields to compensate them for risks associated with falling PDVSA output and, as Fitch Ratings put it in a recent report, "a weakening policy framework, which has increased vulnerability to commodity price shocks".

Venezuela's spread over safe-haven U.S. Treasuries is at about 938 basis points. The overall JP Morgan Emerging Markets Bond Index Plus - including countries from Russia to Turkey to Mexico - is at a much tighter 279 basis points, reflecting the perception of far lower default risk. Ex-paratrooper Chavez, who first won office in late 1998 after a stint in jail for his role in a failed 1992 coup, says he has beaten the cancer he battled over the last year. He swears he fit to keep leading his self-styled "revolution" and has been appearing several times a day at campaign events.

Fitch, S&P and Moody's all have Venezuela graded deep in speculative, or junk bond, territory, which limits the number of funds willing to buy its debt. Its neighbor Colombia, by contrast, has joined other Latin American countries such as Peru, Chile and Brazil as a high-, or investment-grade, credit. Santos said he would expect ratings upgrades to follow fast after Capriles enacts his program, including cuts in oil subsidies offered by Chavez to allies such as Cuba and Belarus. "We estimate that this alone will generate about $7.0 billion in savings," he told Reuters. "We do not think we will have an issue placing those barrels elsewhere in the market if these recipients are not willing to pay market price."

But those savings would not be enough to cover financial needs, he added, so a Capriles administration would likely look to the international capital markets and bilateral lenders. "Foreign debt amortization over the next two years is low, and we may need to issue more than what is forecasted to mature," Santos said. "So we see our foreign debt levels increasing in absolute terms, but decreasing as related to gross domestic product."

Capriles' team says the efficiency and transparency improvements he wants to make at PDVSA would generate up to $5.3 billion in additional yearly export revenue. But to avoid a popular backlash and ensure governability, the pace of reform may be slower than some investors expect. A Capriles government would gradually steer the economy away from an unsustainable private consumption boom, which is driven by state spending, towards public and private investment and job creation, targeted especially at poorer Venezuelans, said opposition policy chief Ricardo Villasmil. He bets that by avoiding a "shock therapy" approach Capriles will win credibility over time both at home and on Wall Street. "Investors will see that we are in for the long run , "
Villasmil said. 

 (Reporting By Hugh Bronstein; editing by Andrew Hay)
 ((hugh.bronstein@thomsonreuters.com)(5411 4318 0655)(Reuters

Keywords: VENEZUELA BONDS/ELECTION