Emerging Markets-Venezuelan bonds fall on bank takeover move

By Walker Simon

NEW YORK, Aug 1 (Reuters) - Venezuelan bonds extended their losses on Friday after the government announced it would nationalize a Spanish bank, in a takeover calculated to drain over a billion dollars from the country's finances.

Chavez late Thursday said he will nationalize Grupo Santander's (SAN.MC: Quote, Profile, Research) Banco de Venezuela, his latest buy in an oil-funded shopping spree that has already gobbled up crude oil projects and a telecoms firm, along with steel and cement plants.

Venezuela's debt returns, calculated on bond prices and coupon payments, fell 0.67 percent on Friday, following a 0.33 percent fall on Thursday, according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ.JPMEMBIPLUS.

"Venezuela has opened a new front on its quest for socialism and nationalization with the targeting of Banco de Venezuela," wrote IDEAglobal in a note Friday. "We sense that the credit will again lose support."

Investment bank analysts quoted wide-ranging Venezuelan estimates of the cost of the bank takeover, the lowest of which was $1.6 billion.

The cost of the takeover, coupled with recently announced arms purchases from Russia worth $1 billion to $2 billion, could divert funds that would be needed to finance a debt buyback, wrote JP Morgan.

In past months, a supportive factor for Venezuelan bonds has been buyback plans, analysts said, which if executed, would boost demand for the country's dollar-denominated debt paper.

Worldwide, emerging market bonds were stable, with returns slipping 0.09 percent, according to JP Morgan's EMBI+.