Research & Strategy

Our Research & Strategy department focuses on innovative, market oriented views and analysis for institutional clients in the fixed income market.

We emphasize our local presence in the region to provide value added in markets like Venezuela and Argentina, where information is not ready accessible. Our main goal is to give investors decision-making tools based on fundamental and quantitative research.

Venezuela Weekly Report

Running Out of Time

December 31, 2018BancTrust & Co. Research Team
  • Bondholders at the limit of its patience
  • Broken promises to Crystallex
  • Oil production’s uncertain figures
  • Hyperinflation Chronicles

It has been more than a year when the government of Venezuela announced the supposed beginning of a restructuring process for international debt. No advance has been made by Venezuela or PDVSA, and bondholders have been patiently waiting for payments or a restructuring proposal.

Now, bondholders are at the limit of its patience and rumors of certain groups of bondholders organizing to assess its possibilities against Venezuela are becoming a reality.

Yesterday, a statement of one of the group of creditors – probably one of the biggest – was released saying they began looking for strategic alternatives with the hiring of Cleary Gottlieb. This group – denominated Venezuela Creditors’ Committee – accumulates a total of USD8bn of Venezuela, PDVSA and ELECAR’s debt.

At this point, and after months of assessing the country’s economic and political conditions, it is likely bondholders are considering initiating a process where they can benefit themselves from assets held abroad either by Venezuela, PDVSA or ELECAR.

Nonetheless, we believe the action responds to bondholders’ necessity to not stay behind the actions of other groups of interested parties, which have already started the persecution against important assets like CITGO.

This situation complicates the panorama for Venezuela, which practically has enjoyed a year of grace and now has all eyes over CITGO and even its oil production.

However, creditors also have an important inconvenience when it comes to a mediation scenario, as current US sanctions against Venezuela prohibits any US person to hold any type of negotiation with any Venezuelan party related to the government.

We don’t expect any announcements or recognitions from the government in the short-term. But if the action of this USD8bn group replicates among other creditors, and it goes public, then the government will be obligated to address the issue. But, under Maduro’s figure, the solution will not be optimal for bondholders or the country.

Argentina Weekly Report

Argentina’s 2019′ Forecast

December 31, 2018BancTrust & Co. Research Team
  • 2019’ political dynamic will define Argentina’s future
    • CFK’s plans so far
    • Latest survey
    • Macri’s real possibilities
  • Opening with macroeconomic variables under control
    • Monetary and Fiscal policy are the fight flags
    • No rest in the battle against inflation
    • GDP: A collateral effect
  • Decisions to target country risk
    • Threads from the outside
    • Argentina’s appealing to investors
    • Argentina’s current curve

Argentina has just finished a year of unveiling its long dated structural deficiencies that needed more than a gradualist approach. All our expectations for 2018, as well as the market’s feeling, were destroyed in the middle of the 2Q18. The necessity to call for help from the IMF set the severity of the situation, and after receiving the biggest bailout approval in history (USD57.1bn), the agreement with the fund governed 2H18 and will definitely rule 2019.

Given the experienced factors of 2018, we would set our perspectives on a more conservative approach and will divide them in the three factors that for us, will define de mid-term perspectives on Argentina: 2019 elections, economic variables and country risk.

2019 political dynamic will define Argentina’s future

As it is widely known, 2019 is the year that Macri will try to win reelection, and our perception over Macri is simple: He is not the preferred candidate.

Macri has shown a lack of reality when it comes to evaluating Argentina’s problems, nonetheless, he is the best option available in order to avoid the return to Peronism, specifically, the return of Cristina Fernandez de Kirchner (CFK). Thus, we believe it is of great importance to define CFK’s plans so far, as this will in turn define Macri’s strategy.

Dominican Republic Bi-Weekly Report

DR’s 2019 Forecast

December 31, 2018BancTrust & Co. Research Team
  • 2019: Keeping the pace up
    • DR’s economy will shine again in 2019
    • Tourism keeps going strong
    • Foreign currency flows to reinforce reserves’ position in 2018
    • Low inflation returns in 2018. Next year, story could be different
  • Fiscal accounts to keep on positive roll
    • Revenues improving at better than expected rates
    • Efficiency in collection will have the final say

Another year is gone and DR continues with its same old habits: Region-leading GDP growth rate, massive foreign currency inflows, inflation under control, among others. 2018 proved our point 2017’s deceleration in economic activity was nothing more than a bump, and we expect next year to continue the same way.

Positive results, as usual, tend to undermine some issues that, in spite of being urgent matters, continue being delayed maybe because they are politically inconvenient – if you asked us last year, we may have said some advances on such issues (we will tell you which later) were possible; today, any advances may be a miracle. Nonetheless, it is time to dig into 2018 results and our 2019 forecasts, so fasten your seatbelts!

2019: Keeping up the pace 

Economic activity last year suffered mightily after hurricanes severe damages, but this economy is resilient and that was proved this year.

We estimate DR will close 2018 with a GDP growth rate of around 6.8%, besting every official forecast made for this year. This leads to a GDP nearing every time more to USD80bn, a milestone we expect to be easily achieved next year.

As we see it, DR’s economy will shine again in 2019 to see GDP growth rates surrounding 6.2%. In this regard, we consider activities like tourism and construction, as well as exports dynamism, will lead economy’s way.

 

Andean, Central America, & Caribbean Weekly Report

Barbados & Bolivia

December 31, 2018BancTrust & Co. Research Team

Barbados: The First Clash

  • External creditors reject first government proposal
  • Lack of communication leads to long term risks
  • S&P improves local currency ratings…
  • … but foreign currency rating waits for restructuring

After settling local debt restructuring, logical next step for Barbados government was facing foreign creditors and, while we always expected negotiations to be tough, officials started with the wrong foot.

Ecuador Bi-Weekly Report

Corruption Threatening O&G Projects

January 11, 2019BancTrust & Co. Research Team
  • Cost overruns risk sustainability of several projects
  • USD650mn will be invested to improve operations
  • Ecuadorean bonds are on a roll

Audits to oil and gas projects undertaken throughout Rafael Correa’s administration was one of current President Lenin Moreno’s foundations on its plan to fight corruption. Today, we get to see a more complete picture of the magnitude and damage caused by official wrongdoing.

Oil Minister Carlos Perez and Petroecuador CEO Pablo Flores presented this week evidence from audits, including the unveiling of USD2.5bn in cost overruns as well as poor construction and quality controls on some of Rafael Correa’s flagship works in O&G industry. After this, President Lenin Moreno called to denounce and prosecute those involved; nonetheless, the damage is done and it remains to be seen how much of this is reversible.

Cost overruns risk sustainability of several projects and Pacific Refinery is one of the best examples.

Viability of the project developed alongside PDVSA is in serious doubts. Leaving aside the dispute PDVSA and Ecuador have regarding liquidation of the JV, assessment to costs found overruns for 23% – total investment was USD1.52bn when less than USD1.24bn was budgeted. One of several doubts presented by possible investors, besides PDVSA’s involvement, relates to how much is really needed to continue with the refinery construction, and past investment may be useless.

Furthermore, audits found it was unwise to start work without securing financing for the entire project. Nonetheless, worst findings were those related to maximum capacity being much less than advertised (barely above 100kbpd and not the announced 300kbpd) and lack of proper economic and operability studies. Convincing new investors in the short term may prove difficult if viability conditions are not clear.

Findings on Pacific Refinery have Ecuadorean officials on a crossroad, asking themselves what to do with the project. There is a possibility of continuing the project as it is; another, moving the refinery to a location closer to sea; but, the most concerning one, there’s an option to transform the project into one of solar power generation or even agriculture.

Corporate Weeky Report

Corporate Report: Pampa Energia

October 7, 2016BancTrust & Co. Research Team
  • Last July, Pampa Energia finished the acquisition process for Petrobras Argentina S.A, turning it into the largest private energy company in Argentina
  • Currently away from top positions, Pampa is likely to improve in its market share position for both oil and gas by next year, once the merge with Petrobras is totally complete
  • An upcoming issuance, which is set to repay a bridge loan which permitted the acquisition of Petrobras, is expected to be of USD600mn, which would be the largest issuance of the company

Company Background

Pampa Energia S.A. is one of the principal energy companies in Argentina and through its subsidiaries manages to participate in all stages of the electricity activity, from exploration and production to distribution. Its activities are separated over three different segments: generation, transmission and distribution. Moreover, the company has participation in production and distribution of general gas. Just to set an example, through Edenor in the distribution segment, Pampa has an important participation in the Argentine market with an estimate 21% of participation in the whole supply of electricity.

  • Tuesday, January 16 2018

    Venezuela:

    - Yesterday the President Nicolas Maduro gave its yearly speech which should be something close to the state of the union and that according to the constitution should be presented in front of the National Assembly. However, this year and arguing the illegality of the National Assembly, the decision was to give his speech in front of the National Constituent Assembly. In detail, more than a state of the union this was one of the usual speech of the President with not much data to collect. Among

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  • Monday, January 15 2018

    Venezuela:

    - The dialogue meeting held in the Dominican Republic between members of the opposition and the government last weekend culminated again without any results. International mediators indicated that although some agreements were reached, several points remain pending and both parties will meet again this Thursday, January 18. In our opinion, it was expected that results would not be achieved,as we have been saying we believe that the most likely to happen is that the negotiation rounds will culmin

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  • Friday, January 12 2018

    Venezuela:

    - The National Electoral Council (CNE in Spanish) announced that it has approved the schedule for the validation of political parties that did not participate in the last municipal elections which it will take place on 27 and 28 of January. The process will be carried out to comply with the order of the National Constituent Assembly (ANC), which has as its sole purpose to be another obstacle for the opposition. We believe that at the moment the attention is focused on the negotiations in the Dom

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  • Thursday, January 11 2018

    Venezuela:

    - The situation regarding Venezuela’s debt with Brazil received yesterday two mixed updates, as the Brazilian Ministry of Finance reported that the first paid an old debt but that it is still in arrears with another payment. In detail, the ministry informed that Venezuela paid USD262.5mn – corresponding to the May-August period of 2017 – on 5 January as part of their commitments under the Reciprocal Credit and Payments Agreement (CCR), which is part of the benefits of the Latin American In

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