Machado Says Venezuela Creditors Lured by Rising Transition Odds

(Bloomberg) -- Some of Venezuela’s debtholders who favored a restructuring under President Nicolás Maduro are shifting their thinking as odds of an opposition victory increase, said María Corina Machado, who leads the campaign to unseat the regime.

“There are some creditors who are starting to change their mind,” Machado said in an interview at her party headquarters in eastern Caracas, declining to give further details. “It’s becoming more clear that change is possible.” 

Maduro, who is running for a third consecutive term as president, will face opposition candidate and former diplomat Edmundo González on July 28 after he banned Machado from public office until 2030. A political transition in Venezuela would likely lead to sanctions relief by the US and pave the way for Venezuela to restructure a pile of debt and past due interest estimated at $150 billion.

But some investors have argued a González victory would destabilize a country that has finally reined in inflation, increased oil production and achieved a modicum of economic growth after years of struggle. Better to stick with Maduro and bet that he establishes enough of an air of legitimacy in the election that Venezuela will be welcomed back to the international community, they say.

The market continues to be cautious. Bond prices have been rising ahead of the election as emerging market-focused investors cover their underweight position, Barclays said. Government notes maturing in 2027 are trading at around 21 cents, about 2 cents higher than a month ago, according to traders and pricing data compiled by Bloomberg.

Prices for Venezuela bonds imply a 36% probability that the July 28 vote will usher in a political transition, rising from about 20% in June, Barclays analysts led by Alejandro Arreaza wrote in a report on Thursday. 

“I believe in markets, it’s a very powerful sign,” Machado said, referencing the Barclays report. She said she’s spoken to investors about a plan to address Venezuela’s debt, but declined to disclose specific names. 

While some analysts have followed Arreaza’s call, other investors still say betting on the opposition remains a long shot in a country where one political party dominates all branches of government. 

“Our base case is that Maduro stays in power, and the assumption is either he wins outright, which we put a low probability on, or he does something to cause the votes to be higher than potentially what they are,” said Jim Craige, head of emerging-market debt at Stone Harbor Investment Partners in New York.

Machado spoke in a small office in her campaign headquarters after holding a campaign-closing news conference with González. She and the candidate advised voters to turn out early on election day, to provide rides and refreshments to their neighbors and family, and to be vigilant for signs of tampering.

Maduro, who has been president for 11 years, and various representatives of his government declined several requests for interviews. The president has accused Machado and other members of the opposition of seeking to undermine Venezuela’s sovereignty, and he’s said her plan to open oil investment to the private sector would be disastrous.

In an interview, Machado said that bondholders who are convinced that a restructuring under a legitimized Maduro administration could be better are “short-sighted” and unable to see benefits that could arise from long-term change.

“There is resistance in some elite groups, which have certain type of privileges,” Machado said. “But those groups are not the Venezuelan people.”

--With assistance from Maria Elena Vizcaino and Nicolle Yapur.

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