Private debt investors are moving into Venezuela as a market closed to investment for nearly two decades is reopening, presenting what some are describing as one of the biggest and most unusual emerging market stories.
After the US capture of Venezuelan leader Nicolás Maduro in January and the appointment of Delcy Rodríguez as acting president, the Trump administration lifted long-standing sanctions, prompting investors to look to the country.
Industrial managers told Another Credit Investor that recent developments in the US have effectively opened up a new market for investors. The country’s appeal is that it is not only rich in natural resources, but it has also experienced about 20 years of suppressed demand and underinvestment.
“The change was faster than most observers expected,” Pedro Urdaneta, senior partner at LEGA Abogados and president of Venecápital, told. ACI. “What we are seeing is not speculative curiosity but well-planned diligence.”
Urdaneta said that Venecápital, a private equity investment organization in Venezuela, is seeing a growing number of institutional shares, family offices and energy-focused funds that are sending teams to the country’s capital Caracas to assess conditions directly, rather than relying on second-hand reports.
“The interest is real, but it’s still premature in many cases,” he said.
Urdaneta added that private debt is currently “the most efficient entry channel available” in Venezuela, arguing that it “can fill that gap faster than equity” as direct investment in oil and gas remains hampered by political and structural challenges.
Emerging market-focused credit company Gemcorp said ACI that it is currently exploring investment in Venezuela with a local private credit group. Proposed investments include corporate financing, reverse financing secured against heavy assets and services provided overseas. The location of the companies is very attractive because it avoids many problems related to sanctions, as some still exist in the country, said the company.
“In terms of the emerging market news that exists… it’s a rare opportunity,” said Parvoleta Shtereva, founder and chief investment officer of Gemcorp, speaking to ACI about private debt investment in the country.
Gemcorp has been “fascinated” by the region for several years because of its abundant natural resources and mineral wealth. However, when he first visited three years ago, it was clear that the country was “paralyzed by sanctions” and investment was not possible, Stereva said.
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Since the sanctions were first lifted, Gemcorp has established a local presence in the country, with its first exposure to public debt, he said. The company currently holds two-thirds of the position.
The region offers great potential for investment because it starts from a low base, where three or four years ago it was “almost completely bankrupt”, according to Shtereva.
“I am from Europe and I lived during the transition of Eastern European countries that came out of Communism and in terms of changes, the power for this country to change itself is almost great, as it has been divided by sanctions, and ways to improve itself,” he said. “But, on the other hand it is a country with a large resource economy, which can be opened up with the right investment.”
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Government obligations and penalties
However, this does not mean that there are no major obstacles to private debt investment in Venezuela, as the country’s situation is particularly “unique”. Lending for infrastructure projects, particularly in sectors such as oil and gas, remains a challenge due to their relationship with “the sovereign, which is all around”, explains Brad McKee, head of private credit at Gemcorp.
At the time of writing, although some sanctions have been lifted, the Venezuelan government and its affiliated entities are still under sanctions.
The challenge is compounded by Venezuela’s large stock of unpaid private and public debt, meaning that infrastructure investment often depends on debt restructuring efforts and the existence of credible companies.
As the country seeks to launch the largest debt restructuring in modern history, rebuilding investor confidence in the government after years of corruption and economic mismanagement may prove difficult.
One emerging markets portfolio manager told ACI that, from an independent perspective, the investment outlook is highly dependent on the framework of debt restructuring negotiations.
“So far, the program has progressed faster than expected, but we are waiting for the government’s promise of a debt sustainability analysis plan to be published as the first sign of their intention to renegotiate their debt burden,” they said. ACI.
Alongside this, investors will generally focus on the export-producing sectors of a volatile emerging market to reduce currency risk. In Venezuela, such industries as oil and gas are closely linked to the state, creating additional challenges in terms of sanctions compliance and government-related exposure, McKee said.
“That’s why, for us, the business environment is interesting because you don’t have those sanctions issues,” he said.
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