sovereign risk, page-9

re: bllaaaaa bblllaaaa bllaaaa Hi '64,

The ole King there makes a valid point except for one thing - just how many oil producing countries /promising oil exporters have had any one or more of the following occur to them:
1)
coups either installing right-wing militarists, or left-wing pacifying extremists;
2)
nationalised all oil production facilities (etc) irrespective of whether located onshore or offshore;
3)
have fought territorial /guerilla wars in and around the oil zone regions (think Venezeula amongst others); or
4)
simply had their means of production cut off or interrupted for any number of reasons.

Sovereign risk does apply because it estimates the degree of risk associated with:
1)
choosing to invest in a particular georgraphical area (typically, a country);
2)
being able to remain invested in those areas (ie: once there and established);
3)
being able to repatriate assets /profits from there (ie: once in place, profitable and seeking a return on investment); and
4)
being able to exit /safeguard the assets in those locations (think Zimbabwe of more recent times, Algeria of the late 1960s, and Central America of the late 60-70s).

It's no good having the asset in place, to suddenly find that that asset has been nationalised (as Labor tried to do with the Banks back in the late 1940s) and one's former position as a shareholder has been reduced to nil.

Sovereign risk may not be apparent to a number of share investors, but the major corporates, Goavernments, financiers, and especially, the insurance market (the world over) look very, very carefully at it.

Mauritania possesses increased sovereign risk to those companies seeking to invest in, or prospect through, the region. The accompanying insurance coxvers alone would, therefore, have some very hefty sovereign risk premiums built into them.