|
|
| Last
Updated: Feb 27th, 2007 - 18:21:21 |
Venezuela
Standard & Poor's recent downgrade of Venezuela on "selective default" could be a misunderstanding based on a technicality, but analysts say it has exposed the government's financial mismanagement while its populist rhetoric antagonizes Wall Street investors.
The downgrade of the country's sovereign credit rating came in mid-January as Venezuela, the world's No. 5 crude exporter, indicated to S&P "it thought it owed around $35 million" in missed payment obligations on oil-indexed bonds due on Oct. 15, S&P analyst Richard Francis said.
Some analysts say the selective default on Venezuelan bonds could be an error by S&P in the way it calculated the reference oil price which includes insurance and transportation.
Venezuela has recently said that preliminary calculations show S&P might be wrong, but it has yet to provide hard evidence.
"Because of the strike in PDVSA and the change in the Ministry of Finance, Venezuela has not provided the right or any information in a timely manner in order to make the calculations and that's what caused the downgrade," Francis said.
Analysts say the confusion epitomizes what is wrong with Venezuela.
"The market already has a concern with the way finances have been coming about in Venezuela," said Enrique Alvarez, Latin America strategist at think tank IDEAglobal.
"There aren't many holders of these (oil-indexed bonds) so that limits their importance ... but there has been a lot of fiscal mismanagement and this only lends to more uncertainty and to the view that it could worsen," he added.
UNDERPERFORM ON 'STUPID REMARKS'
Wall Street had largely brushed off Venezuelan President Hugo Chavez's often incendiary anti-U.S. speeches as populist bluster, but recent events suggest his comments may be becoming more than just rhetoric.
So far this year, Venezuelan bonds represented on the benchmark J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) 11EMJ>.JPMEMBIPLUS> have fallen more than 1 percent in terms of total returns, more than any other country in the index.
"This year Venezuela has underperformed the market slightly and it is all a function of all these miscues, or signals in the wrong direction that are being given to the market on the political and fiscal side," Alvarez said.
Investors were spooked last week by reports the Venezuelan government was considering selling Citgo, its oil refining and marketing operation in the United States while seeking new markets in Asia.
The reports, later denied by Caracas, raised concerns over the flow of oil to the United States from one of its key suppliers.
Chavez's decision to close all the McDonald's MCD.N> restaurants in Venezuela for three days for tax evasion, his close friendship with Cuban President Fidel Castro and U.S. accusations that his government harbored Colombian Marxist guerrillas have not helped the country's image on Wall Street.
In 2004 Venezuelan bonds saw returns of 23.25 percent on the back of record oil prices. This year its bonds continue to be an "oil play," as Venezuela has no problem in servicing its debt while oil prices hover near $45 per barrel.
"Investors don't foresee a default, but they aren't convinced of Venezuela's willingness to pay, due to Chavez's stupid remarks every two weeks," said Gianfranco Bertozzi, vice president of emerging markets research at Lehman Brothers.
BRAIN DRAIN
Venezuela's state oil company PDVSA has been struggling to get its administration back in order following a crippling strike in late 2002 and early 2003 that slashed production and exports.
After the strike, Chavez fired more than 18,000 PDVSA employees including managers, accountants and technicians, and the company is still trying to recover from the messy transition.
Late last year Chavez replaced the Finance Minister Tobias Nobrega with close political ally Nelson Merentes.
But investors say Merentes lacks international financial experience and worry about his close involvement with the government's program to use state oil funds to finance social projects for the poor.
Meanwhile, Standard & Poor's suggested Venezuela would return to its prior "B" rating once matters surrounding the oil-linked debt payments were resolved.
"But at this point, in addition to the fact that they still don't have a calculation, which was due back in September, the government has technical problems," S&P's Francis said.
LatinPetroleum.Com, VENEZUELA news, 8.February.2005, Source: Reuters
Top of Page
|
|
|
