Venezuelan Credit Dashboard: Attention Shifts to Final Quarter

  • Rumors of swap persist as $5 billion is still due this year
  • Oil price increases, although production concerns are mounting

Venezuela, which has the largest crude reserves on the planet, has defied predictions of default since the oil collapse started in 2014 and analysts are split as to how long the nation of 30 million can hold out. With that in mind, Bloomberg is taking a close look each month at some of the key components that may determine its fate.

Debt Payments

The government and state oil company Petroleos de Venezuela SA need to pay $310 million this month after payments totaling $726 million in August, according to data compiled by Bloomberg. Attention will now start to shift toward the last quarter of the year, when interest and coupon payments totaling almost $5 billion come due.

Whether or not Venezuela can avoid a default may depend on if the government and PDVSA officials can strike a deal to refinance debt coming due over the next year. Speculation of such a transaction continued to swirl in August, although authorities have yet to confirm or announce a deal. With time running out to complete a swap for debt due this year, investors have been watching for news about debt coming due next year.

“Perhaps signaling more precarious finances, PDVSA continues to insist on the need for debt re-profiling of the 2017 maturities,” Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc., said in a note this week. “Though more worrisome is the nine months of headlines without any follow-through.”

Bond Prices

Venezuela’s dollar bonds rallied in August as oil prices climbed. Gains were limited by the ongoing political turmoil in the country.

The government’s $4 billion of benchmark notes due 2027 rose 3.3 percent in August to 49.7 cents on the dollar as yields declined to 21.2 percent.

To read about a Venezuela risk scarier than default, click here.

Credit-Default Swaps

Trading in credit-default swaps show that investors increased short-term default expectations for the first time since May, with the the implied probability that it happens over the next 12 months rising to 50 percent from 49 percent at the end of July. Still, that’s much less then the implied risk of 83 percent seen in February.

The probability of a default in the next five years is 91 percent, according to credit-default swaps. Highlighting the risk of nonpayment, Moody’s Investors Service warned June 20 that it was “highly unlikely” that Venezuela would have enough hard currency to fully make its debt payments this year.

Central Bank Reserves

Venezuela’s international reserves were little changed in August, hovering around a 13-year low of $11.8 billion. Reserves have fallen about $4.5 billion this year, according to data compiled by Bloomberg.

Currency Rates

Venezuela’s weakest official exchange rate, used mostly for imports deemed non-essential, was unchanged this month for the first time since authorities started to let the rate depreciate in March, ending the month at 644.6 bolivars per dollar.

The complementary system, known as Simadi or DICOM, accounts for about 8 percent of the government’s hard currency sales. The rest of Venezuela’s greenbacks are sold at the priority rate of only 10 bolivars per dollar.

The Simadi bolivar weakened a staggering 69 percent this year as Miguel Perez Abad, the former economy vice president, pushed the rate to what he said would be a “market equilibrium.” Prices started to rise, though, as more goods were shifted to the system and many products became out of reach for most Venezuelans.

Early last month, Maduro replaced Perez Abad with Carlos Faria, a little known, Soviet-trained engineer. The bolivar has been frozen in place since.

Crude Prices

The price Venezuela receives for its oil exports rose about 16 percent in August to $40.44 a barrel as Eulogio Del Pino, the oil minister and PDVSA president, renewed efforts to push the Organization of Petroleum Exporting Countries and nations outside the group to cooperate. Still, concerns are mounting about the country’s falling production, with OPEC reporting that output declined to only 2.1 million barrels of oil a day in July.

Russ Dallen, the head trader at brokerage Caracas Capital Markets, said in an e-mailed note that after accounting for domestic consumption and crude shipped to China to repay loans, the amount of oil available for export was just 900,000 barrels a day. He warned that a declining rig count and payment problems with suppliers could push total production to as low as 1.7 million barrels a day.

To read about Venezuela’s oil exports, click here.

The opposition continues to insist on a recall referendum this year to remove President Nicolas Maduro but the National Electoral Council said the next stage in the process, the collection of 20 percent of signatures from registered voters, won’t happen until late October, effectively pushing the process into 2017.

The opposition is staging a march in Caracas on Sept. 1 to apply renewed pressure on authorities to hold the recall vote.

To read about the march today, click here.