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Venezuela bonds sink after Maduro moves against retailers

Brian Ellsworth
Tuesday, 12 Nov 2013 | 11:53 AM ET

CARACAS, Nov 12 (Reuters) - Venezuelan bonds dropped sharply on Tuesday after President Nicolas Maduro ordered a military takeover of an electronics chain and authorities arrested dozens of people for purported price gouging.

The country's sovereign global bonds, which did not trade on Monday due to a market holiday, were down 5.66 percent, according to the JPMorgan EMBI+ Index's returns, compared with a drop of 0.89 percent for the broader emerging market index.

The benchmark Venezuela Global 27, due in 2027, was down 2.51 points, or 3.27 percent, at a bid price of 74.79 yielding 13.27 percent.

"(The bond price drops are) definitely a reaction to the perception that the government is ordering a semi-organized episode of looting," said one Wall Street source who asked not to be identified, referring to the government forcing shops to slash prices on goods deemed to be sold at usurious and "speculative" prices.

The country's chief state prosecutor on Monday night said authorities have arrested 28 people since Saturday for selling goods at "speculative" prices and assigned 50 state prosecutors to focus on crimes related to usury.

Among those detained were various managers of the five-store Daka electronics chain. Under Maduro's orders soldiers occupied Daka outlets and forced the company to start selling products at chaper prices.

Shortages of consumer goods and inflation that soared above 54 percent have turned the economy into an increasingly important concern for Venezuelans, who on Dec. 8 will vote for mayors in municipal elections.

The weekend was marred by looting in at least one establishment in the city of Valencia, where dozens of people were caught on camera running out of a well-known electronics outlet with flat-screen TVs and boxes.

"Some of the headlines over the weekend related to government intervention in certain retail outlets, and subsequent reports of looting, seemed like a taste of a much less manageable social and political backdrop," said J.P. Morgan in a research note circulated on Tuesday.

For a variety of reasons, it said it moved Venezuela from "overweight" to "neutral" in its EMBIG emerging market global bond portfolio.

In Venezuela, long lines persisted on Monday and Tuesday as consumers flocked to stores in hopes of finding bargains.

Some shops had remained closed as they scrambled to change prices or sought to fend off crowds, but Maduro on Monday night gave a deadline of mid-day Tuesday to open.

Maduro said Congress this week will approve his request for decree powers, which he said he would use to limit profit margins of Venezuelan businesses.

He blames the current problems on an "economic war" he says is backed by opposition leaders and political adversaries in Washington, and has vowed to step up inspections of private businesses in the coming days to ensure they sell goods at "fair prices."

Critics say the economic situation is the result of a corruption-plagued exchange control system, a vast expansion of monetary liquidity, and intrusive regulations that limit productivity by stifling domestic industry.