February 18, 2016 / 5:35 PM / in 3 years

Market dislikes Venezuela reforms but debt rallies again

NEW YORK, Feb 18 (IFR) - Venezuela’s debt kept rallying Thursday in tandem with oil, but analysts threw cold water on new government measures they said would do little to fix the country’s economic crisis.

President Nicolas Maduro late Wednesday announced measures including a currency devaluation and a hike in the price of heavily subsidized petrol to try to address the crisis.

Even as analysts dismissed the moves, the country’s debt again inched higher as crude prices - one primary source of Venezuela’s woes - pushed up sharply.

The sovereign’s 8.25% 2024s, which had jumped around four points this week as oil rebounded, gained another 1.5 points to trade at 35.36.

Meanwhile the 2024s of state-owned oil giant PDVSA, which with subsidized petrol has borne the brunt of the oil price collapse in the past year, were up about a point around 30-31.


Indeed, Venezuelan debt has tightened some 30bp over the past 10 days, making it the best-performing LatAm sovereign on the Bank of America Merrill Lynch Master Index in that time.

The bounce-back in oil, which accounts for 95% of Venezuela’s export revenues, accounted for much of that, but there were also hopes around Maduro’s new economic plan.

Instead, Barclays blasted the measures as “too little and probably too late”, saying they “maintain large distortions in the economy and do not radially change the capacity of the government to pay”.

Maduro devalued the bolivar by nearly 60% and hiked the price of petrol in Venezuela for the first time in decades.

While the weaker bolivar will help PDVSA’s balance sheet, the move will do little to address Venezuela’s burgeoning deficit.

“We estimate only a small improvement on the PDVSA balance sheet against the estimated consolidated public sector deficit of 20% of GDP,” wrote Siobhan Morden, head of Latin America fixed-income strategy at Nomura.

“That may reduce internal financing needs but would not generate any hard currency to finance the external gap.”

The devaluation is also likely to exacerbate an inflation rate that reached close to 200% last year after the economy shrunk 5.7%, according to Reuters.

For now, markets are still pricing in payment on about US$2.25bn in interest and principal on the sovereign’s 5.75% 2016s, which mature on February 26.

They were trading around 95.25-96.25 on Thursday morning.

But on later maturities, bond prices fall precipitously lower, indicating that investors are bracing for default later this year.

“Although the authorities seem to be willing to do almost anything to avoid a credit event in 2016, it is still a difficult task, in our view,” said Barclays. (Reporting by Paul Kilby; Editing by Marc Carnegie)

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