Investors split over chaos in Venezuela
Political chaos in Venezuela sparked by international support for the leadership of opposition politician Juan Guaidó has called into question more than $25bn (R342bn) worth of investments made by China and Russia, the most prominent backers of Nicolás Maduro's threatened regime.
But while Beijing and Moscow worry about the future of their ally and the fate of their investments in his administration, Western investors have cheered the news of a potential leadership change in Caracas that could help the country's battered economy turn a corner.
The contrasting reactions among investors mirror a sharp geopolitical divide between governments including the US, Canada and Brazil that have supported Guaidó's claim to power, and condemnation by Russia, Turkey and others. Maduro describes moves to oust him as a "coup attempt".
Beijing and Moscow are owed billions of dollars by the crisis-racked country and have billions more tied up in investments signed with Maduro's administration.
Venezuela's opposition-controlled National Assembly, of which Guaidó is head, has previously warned foreign companies and governments that major investments in the country required its approval, and that those dealing solely with Mr Maduro were not legally enforceable.
"An outright default on the debt is a very low-probability event ... [But] this doesn't mean that some sort of restructuring of debt is out of the question," said Iikka Korhonen, head of the Bank of Finland's Institute for Economies in Transition.
"And even if there is no restructuring, any new government will want to review various deals made by its predecessor. I think this is the most likely outcome, if there is a change in the government. This applies to both Russian and Chinese investment," Korhonen added.
"This would be messy, but this is what Malaysia did regarding deals with China after a change in their government, for example."
Though it is legally very difficult for states to renege on deals struck by past administrations, the fate of debt repayments is likely to depend on who ultimately emerges in control of the country's oil industry, which generates the crude and hard currency used to pay off creditors.
China is Venezuela's biggest foreign creditor, and has pumped more than $50bn into the country over the past decade, mainly in exchange for oil supplies. About $20bn of that was outstanding in September, according to Chinese media reports.
The bulk of China's loans were extended by the China Development Bank, which has come under criticism in China for the extent of its exposure to Venezuela. The Export-Import Bank of China, which had a smaller portfolio, has been in contact for some time with the Venezuelan opposition, in the hope of maintaining its rights as a creditor.
China's foreign ministry on Thursday called for "calm" and said Beijing "opposes foreign forces from interfering in Venezuela's affairs".
Caracas owes Russia more than $3bn, a debt that was restructured in November 2017 to give Maduro more time to pay it back.
In addition, about $3bn is owed to state-controlled Russian oil company Rosneft, which also owns two offshore gas fields in the country and stakes in five oil assets boasting more than 20-million tons of crude.
Shares in Rosneft fell by as much as 3.4% on Thursday. The company declined to comment. Russian President Vladimir Putin's spokesman declined to respond to a question regarding whether Moscow was concerned that the debt will not be repaid.
Moscow's financial outlay, totalling more than $15bn since 2006, secured preferential access to vast oil reserves and shored up an adversary of Washington in the Americas. Maduro, who visited Moscow in December to drum up more cash and strike a grain-supply deal, has described Russia as a "brother country".
In recent months, International Monetary Fund officials have been discussing with Venezuela's creditors how best to support and work with a new government should one emerge, a person with knowledge of the talks said.
Many Western investors see the developing crisis as positive. Venezuelan sovereign bonds in JPMorgan's EMBI-GD benchmark index rose more than 10% on Wednesday, bringing gains this month to more than 37%.
Paul Greer, portfolio manager for emerging-market debt at Fidelity International, which holds Venezuelan bonds, said the unity of opposition behind Guiadó had raised hopes that the drive for regime change would go further than the false dawns of other opposition leaders in recent years.
"What is pretty clear is that domestic opposition to President Maduro has never been higher," he said. "The key now is how long can Maduro survive and will his support in the military remain in place?"
Uday Patnaik of Legal & General Investment Management said he had been positioned for a change of government in Venezuela for the past six or seven months.
"The hard part is that people have been predicting regime change for years now," he said. "But you do get the feeling that this is the beginning of the end."
© 2019 The Financial Times..