Venezuela’s Benchmark Dollar Bonds Decline to Record Low on Oil

Venezuela’s benchmark bonds fell to a record low as a plunge in crude prices dimmed revenue prospects for the oil exporting nation amid dwindling reserves.

The bonds dropped 4.4 percent to 36.165 cents on the dollar as of 11:00 a.m. in New York, extending their decline this month to 36 percent. State-owned oil company Petroleos de Venezuela SA’s bonds due in November 2017 retreated 3.1 percent to 43.454 cents on the dollar, also a record low. Venezuela’s 13.625 percent bonds due 2018 fell 27 percent to 44.15 cents while the yield rose 13.72 percentage points.

Crude oil, which makes up 95 percent of Venezuela’s exports, has fallen to a five-year low as OPEC fights back against at U.S. shale boom that has created a global glut. While the country’s reserves cover just two years of debt payments, Venezuela doesn’t plan to cut gasoline subsidies or reduce cheap loans to Caribbean allies to save cash, President Nicolas Maduro said on Dec. 14.

“If there’s no stabilization of oil prices the situation becomes very dire,” Olivier De Timmerman, a money manager at KBC Asset Management SAD, said by phone from Luxembourg. “Venezuela doesn’t want to default. They can still avoid it for a time but we’re getting closer to the edge of the cliff.”

The price of Venezuelan oil fell to $57.53 per barrel last week, the oil ministry said yesterday, a 43 percent decline since June.

Hard Currency

Venezuela and PDVSA issued $65 billion of dollar bonds in the past 10 years without receiving any hard currency, selling the securities in bolivars to local investors who sold the notes abroad to obtain scarce U.S. currency.

The country has $1.3 billion of debt payments in euros to make in March and $3.1 billion of interest payments on dollar debt due next year. PDVSA has $6 billion of debt payments in dollars due in 2015.

The total value of Venezuela and PDVSA’s $67.9 billion of outstanding bonds in dollars and euros fell to $26.6 billion at bid prices today.

Venezuela’s international reserves fell to $21.4 billion on Dec. 12. The country has already burnt through $3.1 billion of reserves in the four weeks since it added $4 billion borrowed from China.

OPEC won’t cut supply even if oil falls to $40 a barrel, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Dec. 14.

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