Venezuela Bond Investors Say the End May Be Near for Maduro's Regime

(Bloomberg) -- Venezuelan bonds are posting their biggest gains in a year as President Nicolas Maduro’s opponents gain momentum in their efforts to oust him amid nationwide protests. World leaders are now saying they’ll recognize Juan Guaido, the head of the National Assembly, as the interim president.

The thinking is that a new administration will be in a better position to bolster oil production and restart economic growth after years of economic crisis under Maduro’s socialist regime. A new leader could also open up the way for a bond restructuring agreement after the government and state-owned oil company fell behind on $9 billion of payments, sending prices for most securities tumbling below 30 cents on the dollar. Sanctions have prevented investors from pursuing any sort of accord with Maduro’s administration.

Venezuela Bond Investors Say the End May Be Near for Maduro's Regime

Here’s what analysts and investors had to say about the outlook:

Siobhan Morden, head of LatAm fixed-income strategy at Nomura in New York:

  • “U.S. recognition will come with responsibilities. It’ll be a game of chicken to see if incremental pressure works for an internal rupture. If not, then look for full blown economic sanctions”
  • PDVSA bonds could jump to 30 cents on the event of a regime change

Sean Newman, a portfolio manager at Invesco Advisers in Atlanta:

  • “The U.S. recognition is a game changer. It may prompt Maduro to do something radical like try to remove him, which will leave the international community no choice but tighten grip around country, leaving the military to abandon him”
  • Invesco owns Venezuelan bonds, but is not adding more at this moment given the spike in prices Wednesday

Francisco Rodriguez, chief economist at Torino Capital:

  • The bond rally will probably fade if the military reiterates its support for Maduro
  • Market has been betting on regime change, yet it depends on military
  • Unclear how long Maduro would survive if Venezuela loses capacity to sell oil to U.S.
    • Consequences could be similar to U.S. decision to freeze Libyan assets in 2011 and Muammar Gaddafi losing power several months later

Ahmed Riesgo, chief investment strategist at Insigneo Securities in Miami:

  • “The quicker Maduro’s out, the better it will be for bondholders. I think what you’ll have is you’ll have a new government come that will want to enter into a restructuring”
  • “The market is anticipating that a little bit, especially with the move in the prices over the last few days”
  • “The new government is probably going to have a bit of a honeymoon period with bondholders, where they may be a little more amenable to terms”
  • Says credible range for recovery value is between 30-40 cents

Shamaila Khan, director of emerging-market debt at AllianceBernstein in New York:

  • Has a long-held view that regime change would happen
  • “We think regime change is likely in the near term”
  • It’s possible that debt may overshoot amid the positive news, but not there yet

Patrick Esteruelas, a senior analyst at Emso Asset Management in New York:

  • It’s potentially “the beginning of the end” for Maduro’s regime amid increasing foreign and domestic pressure
  • Emso is long Venezuelan bonds
  • Favors lowest priced PDVSA bonds

Michael Roche, a strategist at Seaport Global Holdings in New York:

  • “Any and all ‘positive for regime change’ information coming to light will add pressure on participants to accumulate an exposure to the Venezuelan sovereign given the likelihood that prices could close in on recovery values -- in the $40 area -- quickly”
  • Investors should buy “on a tactical basis -- it’s best to buy any weakness so as not to push prices up too quickly”
  • “The market will now look to see the reaction of the Maduro government to the protest and diplomatic moves”

Ray Zucaro, chief investment officer at RVX Asset Management in Miami:

  • Recent actions by the U.S. and other governments to recognize Venezuelan opposition leader Guaido as the interim president are a "game changer" for the nation’s bonds
  • “All the avenues are closing” for Maduro
  • Sees value in PDVSA 22s, PDVSA 23s and PDVSA 24s

James Gulbrandsen, a Rio de Janeiro-based asset manager at NcH Capital:

  • “This time feels very different from previous moments when Maduro seemed at risk”
  • “Bolsonaro’s election in Brazil may be the difference maker as Maduro can be squeezed not only from the north but also now from the largest power in Latin America”

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