Latin Finance - September/October 2011 - 71

Andean venezuela debt

An Opportunity Victory? last couple weeks,” Bret Rosen, Latin America sovereign debt Analysts are increasingly optimistic about a change in strategist at Standard Chartered, said in July. government. “Overall, it increases the possibility of the “Chávez’s health further weakens a situation that was opposition winning,” says Daniel Kerner, an analyst covering already becoming untenable,” says Siobhan Morden, head LatAm for political risk research firm Eurasia Group, about of Latin America strategy at RBS. “His health impacts his Chávez’s health disclosures. interactive style, his micromanagement and his visibility as a Even if Chávez continues to battle cancer through the candidate.” elections, he may still choose to run. But serious health Some strategists are already looking at the potential issues could take away Chávez’s strongest asset: his tireless opportunity Venezuela could offer. Segura says that the exit of campaigning abilities. “He might choose to run, but not be able Chávez, along with a few changes at state-owned oil company to campaign. In the run up to elections, he campaigns 24/7,” Pdvsa, could lead to a significantly improved investment Segura says. “If he can’t . . . that’s going to hurt.” environment. “Basic management competence will go a long Chávez had been expected to face a tight race even before way to stabilizing oil production,” he says. news of his health The opportunity for problems became public. a quick turnaround in Venezuela’s Total Oil Production (1,000 Barrels per Day) His popularity, though production at Pdvsa is Steady decline still high, has declined particularly enticing. from 60% in 2005 to Production at Pdvsa has 3,600 around 45% in the latest fallen 32% from a high of 3,400 poll by Consultores 21, 3.5 million barrels of oil up slightly from the per day in 1997 to only 3,200 40% after losing the 2.4 million barrels per day popular vote in last year’s in 2010, despite having 3,000 congressional elections. A the world’s second largest Consultores 21 poll from reserves, according to the 2,800 March showed that 52% US Energy Information of the electorate plan to Administration (EIA). 2,600 vote for the opposition, “If that reverses, that’s against only 43% planning extreme upside,” Morden 2,400 to vote for Chávez. says. “The potential upside 2,200 Meanwhile, potential in terms of oil wealth opposition candidate is unique in terms of 2,000 Henrique Capriles Venezuela versus any other 1997 1999 2001 2003 2005 2007 2009 Radonski, governor of country.” Miranda, is polling at Diego Ferro, Source: US Energy Information Administration (EIA) around 55%. The electoral portfolio manager at swing is not only a reflection of the weakness of the Chávez Greylock Capital Management, says the country is still a administration, but the strength of a revitalized opposition. cheap opportunity even after the fall in the CDS spreads and Although the Chávez administration is likely to try to spend uncertainty surrounding the election. “If anything we have seen its way into the hearts of the electorate, no public spending some of the volatility as an opportunity to increase exposure program will likely be sufficient to sway poll numbers. “He’s there,” Ferro says, adding that even with Chávez still in power not going to buy any votes at this stage because whatever the credit looks cheap. money he spends is so grossly inefficient it doesn’t get to the Such perceptions may soon shift as crude prices tumble on voters,” Morden says. The administration’s attempts to address fears a over slowdown in global economic growth, with WTI hot button issues, such as projects to solve drastic housing trading in the low 80s as of mid August. Yet barring any drastic shortages, have so far proven ineffective. drop in oil, the country’s oil reserves are thought to be an “Before, I would have said there was a 30% chance of the enormous asset to help it weather the difficulties of a shift back opposition winning,” says Edwin Gutiérrez, EM debt portfolio to a market economy. manager overseeing $5 billion in EM debt at Aberdeen Asset With sufficient capex and foreign investment, Venezuela Management. “Now you’re probably looking at 50/50. If Chávez could double its oil production by the end of the decade, Rosen is out of the way, the opposition is favored here.” says. “There’s a plethora of international energy companies CDS spreads in July were pricing around a 65% chance of that are lined up and are taking a wait-and-see attitude to what a Chávez victory, according to Morden, who says that ratio happens to Chávez next year.” should probably be reversed in favor of an opposition victory. A change in political leadership, potentially including a “I think the credit spreads have a lot more room to go in terms change to the windfall tax, could cause a sudden influx in of compression,” she says, adding that a 60% likelihood of an foreign investment.
September/October 2011

LatinFinance 71

Latin Finance - September/October 2011

Table of Contents for the Digital Edition of Latin Finance - September/October 2011