Private credit investors are moving into Venezuela as a market closed off to investment for almost two decades reopens, presenting what some describe as one of the biggest and “rarest” emerging markets stories.

Following the US capture of Venezuelan leader Nicolás Maduro in January and the appointment of Delcy Rodríguez as acting president, the Trump administration rolled back long-standing sanctions, prompting investors to turn their attention to the country.

Industry managers have told Alternative Credit Investor that recent US developments have effectively opened up a new market to investors. The attraction of the country being that not only is it rich in natural resources, but it has also experienced around 20 years of suppressed demand and underinvestment.

“The shift has been faster than most observers anticipated,” Pedro Urdaneta, senior partner at LEGA Abogados and president of Venecápital, told ACI. “What we are seeing is not speculative curiosity but structured due diligence.”

Urdaneta said Venecápital, the association for private capital investment in Venezuela, is seeing a growing number of institutional allocators, family offices and energy-focused funds sending teams to the country’s capital of Caracas to assess conditions directly, rather than relying on second-hand reporting.

“The interest is real, but it is still pre-deployment in most cases,” he said.

Urdaneta added that private credit is currently the most “efficient entry channel available” into Venezuela, arguing that it can “fill that gap faster than equity capital can” as direct investment in oil and gas remains constrained by political and structural challenges.

Emerging markets-focused private credit firm Gemcorp told ACI that it is currently exploring investments in Venezuela with a local private credit group. The proposed investment involves corporate-backed, back-to-back financing secured against hard assets and serviced offshore. The corporate space is particularly attractive because it avoids many of the sanctions-related issues, with some still in place in the country, the firm said.

“In terms of the emerging market stories that are out there… it’s a rare opportunity,” said Parvoleta Shtereva, co-founder and chief investment officer at Gemcorp, speaking to ACI about private credit investment in the country.

Gemcorp has been “fascinated” by the region for several years because of its vast natural resources and mineral wealth. However, when first visiting three years ago, it was clear the country was “crippled with sanctions” and investment would not be possible, Shtereva said.

Read more: Gemcorp closes $20m structured financing facility in Saudi Arabia 

Since sanctions began to be lifted, Gemcorp has established a local presence in the country, with its first exposure through public debt, she said. The firm is currently still holding two-thirds of the position.

The region offers significant investment potential because it is starting from such a low base, where three or four years ago it was “almost at total economic collapse”, according to Shtereva.

“I am European and I lived through the transition of eastern European countries out of communism and in terms of the transformation, the potential for this country to transform itself is almost as big, as it has been isolated by sanctions, and the means to develop itself,” she said. “But, on the other hand it is a country with huge resource wealth, that can be unlocked with the correct investment.”

Read more: Gemcorp appoints Carey Nemeth as president

Government ties and sanctions

However, this is not to say there are no major hurdles to private credit investment in Venezuela, with the country’s situation being particularly “unique”. Lending to infrastructure projects, particularly in sectors such as oil and gas, remains challenging because of their ties to the “sovereign, which is wrapped all around it”, explained Brad McKee, head of private credit at Gemcorp.

At the time this article was written, even though some sanctions have been removed, Venezuela’s government and organisations connected to it are still largely subject to sanctions.

The challenge is compounded by Venezuela’s large stock of defaulted sovereign and public debt, meaning infrastructure investments often hinge on debt restructuring efforts and the availability of credible counterparties.

While the country is seeking to launch one of the largest sovereign debt restructurings in modern history, rebuilding investor confidence in the state after years of corruption and economic mismanagement may prove difficult.

One emerging markets portfolio manager told ACI that, from a sovereign perspective, the investment outlook depends heavily on the framework for debt restructuring negotiations.

“So far, the process has advanced faster than expected, but we are waiting for the government’s promise of a debt-sustainability analysis exercise to be published as a first signal of their intention in renegotiating their sovereign debt load,” they told ACI.

Alongside this, investors would normally gravitate towards export-generating sectors in a volatile emerging market to mitigate currency risk. In Venezuela, those industries such as oil and gas are heavily intertwined with the state, creating additional challenges around sanctions compliance and government-related exposure, McKee added.

“That is why, for us, potentially the corporate area is interesting as you don’t have those sanctions issues,” he said.

Read more: Investors signal appetite for private credit in emerging markets