Since 1999 until now, the return of investment bonds in Venezuela stood at 681%, or about 14.7% per year. The advantage of this investment has enriched many investment institutions world from OppenheimerFunds Inc to Goldman Sachs Asset Management LP.
They depend on Chavez who use its oil wealth to pay its liabilities to its creditors. Although nationalist policies Chavez has made foreign investors fled Venezuela and raised borrowing costs by 12%, but Chavez had never once missed paying bonds.
Borrowing costs 12% was 4% above the average cost of a loan or interest on the bonds of developing countries.
"This is an investment that actually generate high income and a high total return for your portfolio," said Sara Zervos, emerging-market debt manager OppenheimerFunds in New York. "Chavez has not done much for his country but he served bonds. Interests us in line," he added.
But now, 58-year-old man was struggling with cancer. Thus, the return government debt threatened Venezuela ended. The price has jumped to its highest level in four years on Dec. 8, when Chavez said he would do some surgery to fight cancer gnawing.
Head Trader Russell Dallen Caracas Capital Markets estimates, Venezuela bond will not provide benefits for the past decade as the price rally subvert returns to the level equal to the developing countries.
Despite the pain, hold on to power
Chaves has been a decline in health boost Venezuela bond prices by 41% in the last year. The market speculates that the new regime will stop policies that limit oil production.
Chavez did not attend the inauguration of the third term on January 10, 2013. Despite the pain, he will still govern Venezuela for up to six years.
Information Minister Ernesto Villegas said on Sunday (27/1) that Chavez is healthy enough to take on economic policy.
Chavez is a controversial figure. Fellow former Cuban president Fidel Castro has nationalized numerous companies ranging from agriculture to energy. He wore a price limit on certain products ranging from toothpaste to toilet paper.
Chavez also has devalued the bolivar currency run four times since exchange controls in 2003. He closed more than 50 forex brokers in 2010 and threatened jail those who deal in the black market.
Chavez nationalist policies do not fully bring prosperity. Venezuela is the third country with the highest inflation in the world. The Latin American country has ever experienced a shortage of electricity, meat, and even sugar.
Oil money and Goldman
On the other hand, policies to boost bond yields Chavez of Venezuela. As a result, investors were lured by discounted prices that occurred.
According to data from Bank of America Corp., Venezuela bond coupon payments have exceeded profit from rising prices by 1.4 times since 1999. Compare with Brazil's only 0.3 times.
Chavez's government bonds have always paid on time. Understandably, Venezuela still enjoy the blessings of oil prices. In 1998 the oil price was only U.S. $ 12 per barrel, but is now U.S. $ 97 per bare. Venezuela is the country with the world's largest oil reserves.
Venezuela will receive U.S. $ 81 billion from oil exports this year. Citigroup said the value is nearly 10 times the value of government debt and interest payments plus the state oil company Petroleos de Venezuela SA (PDVSA).
"Although the story starts to deteriorate, Venezuela will continue to pay its debts. Situation will become more stringent, and may be more prone toward default," said Sam Finkelstein, emerging-market bond manager Goldman Sachs Asset Management in New York.
Goldman has become bondholders Venezuela for 15 years. Even the number reached 6.7% of portfolio products Growth & Emerging Markets Debt Fund Goldman owned. This product is reaping returns 12.8% in the last three years, over 90% of other similar products.
Why Chavez discipline to pay bond
Chavez once called debt as a tool used 'royal' the United States to exploit Venezuela. Even so, he always kept payment bonds even after the national oil industry strike for three months in 2003.
Chavez pays all interest and debt obligations because if not, the creditor can seize Venezuela's oil shipments. Nocore Simon, a former IMF economist, explained that Venezuela's oil exports accounted for half of government revenues.
"Bond investors can also freeze the assets of Venezuela outside the country, including refineries and gas terminals Citgo Petroleum Corp., a subsidiary of PDVSA," said Nocera who is currently the chief investment officer at Lumen Advisors LLC.
"He knew if he did, he would not be able to sell only products that keep it alive. There's no reason to be afraid."
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