GMO's Ross Sees Venezuela Windfall Coming for Those Who Can Wait

(Bloomberg) -- One of Venezuela's largest creditors says a payoff is coming for bond investors willing to suffer months, if not years, of angst.

Grantham Mayo Van Otterloo & Co., among the top 10 reported holders of the country's debt, is hanging on to the securities it has and buying notes when prices drop below 20 cents on the dollar on a bet the debt is worth at least 30 cents and as much as 100 cents.

“We think it's an opportunity at these levels and we're willing to wait for an eventual payoff,” Carl Ross, a sovereign analyst at GMO, said at a CFA Society conference in Rio de Janeiro on March 2.

Venezuela has left creditors in something of a no-man's land as it falls behind on more than $1.7 billion in payments while blaming U.S. sanctions and a conspiracy of global financiers for its woes. Though President Nicolas Maduro has proposed a restructuring, the sanctions forbid most creditors from interacting with the government and engaging in any kind of debt swap that would normally be part of the process. Instead, many investors are waiting for a new administration to come to power, perhaps after May's elections or further down the line if there's a revolt by citizens angry about spiraling inflation and an economic collapse.

The government's benchmark $4 billion of bonds due in 2027 are trading at about 27 cents on the dollar, down from about 53 cents a year ago, and touched as low as 18 cents in January. Notes from state oil company Petroleos de Venezuela SA due in 2022 stand at 29 cents, compared with 68 cents last year.

Venezuela is suffering from one of the world's worst recessions due to years of economic mismanagement, with gross domestic product expected to contract for a fifth consecutive year in 2018. Its current debt load, however, will be sustainable once the ship is righted given that the country sits on the world's largest oil reserves, Ross said.

GMO's view is that investors who can wait as long as five years will profit by buying Venezuelan debt. Ross stressed the need for patience while adding that the probability of a multidecade isolation -- as seen in Cuba, Sudan or North Korea -- is low.

GMO, which has over $7 billion in emerging-market debt under management, is overweight Argentina and Brazil as well as Petroleo Brasileiro SA, Ross said. It does like quasi-sovereigns including credits in Peru, Chile and Colombia.

To contact the reporter on this story: Daniel Cancel in Sao Paulo at dcancel@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Andrew Dunn

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