Venezuela Default Expected Next Year as Oil Tumbles, SocGen Says
By Sebastian Boyd - 17/dic/2014 17:21:01
Venezuela will probably default next year and possibly in the first quarter as the price of crude oil tumbles, according to Societe Generale SA.
“The move in oil reinforces my view that Venezuela is likely to default, with some probability in the first quarter and with a very high probability in the last quarter of next year,” Regis Chatellier, a credit strategist at Societe Generale in London, said today by phone from London. He changed his recommendation on Venezuelan bonds to underweight Sept. 11.
Venezuelan bonds are the worst-performing in emerging markets, losing 30 percent in the month through yesterday. The bonds extended losses after President Nicolas Maduro said last weekend that he will keep a 6.3 bolivar-per-dollar fixed exchange rate for priority imports and saw no need to curb fuel subsidies that keep the price of gasoline in Venezuela at 6 cents a gallon. He said there is no possibility of default unless it is part of a strategy to bolster economic development and no such plans are in place.
The benchmark bonds due in 2027 rose today after reaching a 16-year low Dec. 15. The bonds climbed 2.5 cents to 40.53 cents on the dollar as of 11:03 a.m. in New York.
The government and state-owned oil company Petroleos de Venezuela SA have to make $12 billion of interest and principal payments on hard currency debt next year. To do so, they will have to dip into their $21.4 billion of international reserves at the same time as providing dollars for imports.
“At these debt levels, they may run out of reserves very quickly,” Chatellier said. “They have to continue to import because there’s no substitution, but at the same time they need to pay external debt. They can’t sustain that. They won’t make it.”
PDVSA’s bonds due in November 2017 rose 4 cents to 49.30 cents on the dollar today after declining on Dec. 15 to the lowest since their were issued in October 2010.
For Related News and Information: Venezuela’s Got $21 Billion, Owes $21 Billion as Crisis Builds Venezuela Is Solvent, Has Met Financial Obligations: Maduro Default Not Part of Venezuela Economic Strategy, Maduro Says
To contact the reporter on this story: Sebastian Boyd in Santiago at
[email protected]
To contact the editors responsible for this story: Brendan Walsh at
[email protected] Dennis Fitzgerald, Rita Nazareth
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