Venezuela Still Seen Defaulting in 2015 by Deutsche Bank

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With oil prices ticking up and new financing commitments, cash-strapped Venezuela is persuading traders and analysts alike to back away from calls the country will default this year.

But not everyone is buying it.

Deutsche Bank AG and Jefferies LLC still see Venezuela running out of money to pay debt in 2015. They’re the only ones out of 10 firms surveyed by Bloomberg, which included Goldman Sachs Group Inc. and Credit Suisse Group AG.

While the country has raised almost $5 billion in the past month and oil has jumped 21 percent from an almost six-year low, Deutsche Bank’s Armando Armenta says that’s still not enough. Venezuela needs $32 billion to finance itself this year, according to his estimates.

“The financing gap that they are facing for this year with current oil prices is just too large,” Armenta, the bank’s New York-based economist, said by telephone. “I don’t see a path out in which they can avert default.”

A Finance Ministry spokeswoman, who asked not to be named because of government policy, declined to comment on the possibility of default. On Feb. 10, Finance Minister Marco Torres told reporters Venezuela will meet its debt commitments.

The nation’s bonds have returned 14 percent in the past month, the most in emerging markets, as oil climbed $10 a barrel. Venezuela raised $2.8 billion through its U.S. refining unit Citgo Petroleum Corp. in the bond and loan markets and $1.9 billion from crude sales to the Dominican Republic.

‘Likely Scenario’

Derivatives traders have now cut the probability of a Venezuela default over the next 12 months to about 64 percent from 82 percent a month ago, according to data compiled by CMA.

“The market seems to be differentiating between what happens this year and what may happen in 2016,” Fernando Losada, an economist at AllianceBernstein, said by telephone from New York. “Many people in the market believe that the most likely scenario is that they will make payments this year.”

Venezuela, which relies on crude for more than 95 percent of exports, and its state oil company have about $10 billion of debt due this year, according to Armenta. That’s equal to 43 percent of the country’s $23 billion in foreign reserves.

The nation will also need about $40 billion to import everything from milk to toothbrushes, according to Armenta’s estimates.

To Jefferies’s Siobhan Morden, Venezuela may have been better off selling Citgo as its ability to rely on these sources of funding again are limited.

‘Still Underfunded’

“Inflows are going to be less because they’re using Citgo as an issuance vehicle as opposed to selling Citgo outright,” Morden, the head of Latin America fixed income at Jefferies, said by telephone from New York. “These are all one-off measures. They’re still underfunded for this year.”

Venezuela’s latest measure to ease a shortage of hard currency will also prove insufficient, says Deutsche’s Armenta.

The government has allowed the bolivar to weaken 70 percent to 172 bolivars per dollar since Feb. 12, when trading began on a new market that allows unrestricted prices on the currency. Still, almost all of the country’s dollar needs -- from importing food and medicine to other essential goods -- will still be met using the fixed official rate of 6.3 bolivars or through auctions starting at 12 per dollar.

“All these measures they might announce or might not announce in coming months, even though they would’ve helped a few months ago, would not be enough during this year,” Armenta said. “Some sort of external financing for the economy is needed. I don’t know what could be a source.”

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