Venezuela’s Rating Cut by S&P Amid Post-Chavez PolarizationNathan Crooks and Corina Pons
Venezuela’s credit rating was cut by Standard & Poor’s, which cited concern that division within President Nicolas Maduro’s administration may impair the government’s ability to shore up a sputtering economy.
S&P lowered the rating to B, five levels below investment grade, and gave it a negative outlook. The rating, in line with countries including Ecuador and Cameroon, is the oil-producing country’s lowest since 2005. Yields on government bonds jumped the most since April 16, two days after Maduro was elected.
Maduro, the handpicked successor of the late Hugo Chavez, who died of cancer in March, is struggling to contain soaring inflation and rising shortages of everything from toilet paper to chicken while economic growth slumps. Annual inflation soared to 35 percent in May, the highest since at least 2008.
“Political polarization and internal challenges within the Venezuelan government threaten to weaken the implementation of economic policies at a time of worsening economic conditions with decelerating GDP growth, increasing inflation and growing pressures on external liquidity,” S&P said in a statement.
The ratings agency also cut its corporate rating on state oil company Petroleos de Venezuela SA, or PDVSA, to B from B+.
“The negative outlook on PDVSA mirrors that on the sovereign, reflecting its government-related entity status,” S&P said today.
Yields on the government’s benchmark dollar bonds due 2027 surged 45 basis points, or 0.45 percentage point, to 11.40 percent at 5:04 p.m. in New York. Yields had fallen to as low as 9.01 percent in the run-up to Maduro’s election.
“There is a deterioration in the macroeconomic, political and social environments in Venezuela,” Alberto Ramos, an analyst at Goldman Sachs Group Inc., said today in a telephone interview from New York.
S&P last cut Venezuelan debt in August 2011, citing “changing and arbitrary laws” and Chavez’s declining health. Moody’s Investors Service rates Venezuela B2, the equivalent to S&P’s B rating.
The government, which has limited Venezuelans’ access to dollars with currency controls over the past decade, has held only one auction of dollars since introducing a new exchange system in March, a month after it devalued the currency 32 percent. That has left companies short of the dollars they need for imports, forcing them to turn to the black market, where the dollar goes for 30 bolivars, compared with the government-sanctioned official rate of 6.3.
Venezuela Finance Minister Nelson Merentes said on June 12 that he had delayed an investor roadshow intended to reduce the country’s perceived risk until July because of market conditions. Merentes and planning minister Jorge Giordani were in Rome today with Maduro, who held talks with Pope Francis, according to images broadcast on state television.
The economy grew 0.7 percent in the first quarter after expanding 5.6 percent expansion 2012.
“While the government clearly recognizes the need to respond to worsening economic conditions, it has announced few concrete measures,” Eurasia Group analysts Daniel Kerner and Risa Grais-Targo said in a June 10 note to clients. “Absent coherent policy preferences and with diverse preferences among the most powerful cabinet members, economic policymaking looks set to remain reactionary and erratic.”