Venezuela Is Teetering On Default
By
Dimitra DeFotis
Nov. 7, 2017 5:54 p.m.
If Venezuela does not make a $1.12 billion payment that was due Nov. 2 tonight, default may finally happen.
"Coupled with the previously missed payments on outstanding sovereign bonds that are currently within their 30-day grace periods, a default event appears highly probable,"
Fitch Ratings said in a downgrade of Venezuela's Corporacion Electrica Nacional Tuesday.
The International Swaps and Derivatives Association will be asked to rule if credit default swaps (CDS), a form of insurance when debt payments aren't made, have been triggered. More may be posted on
the ISDA's website, according to
Caracas Capital's Russ Dallen.
A Venezuelan default has been in the cards for so long, the regional impact may be muted. The
iShares J.P. Morgan U.S. Dollar Emerging Markets Bond exchange-traded fund (
EMB) slipped 0.5% Tuesday and the
iShares Latin America 40 ETF (
ILF) fell nearly 2%. Venezuela does not pose systemic risk for Latin America the way that Greece did for Europe. But
Wells Fargo Investment Institute head global market Strategist
Paul Christopher told Barron's Tuesday that if Venezuela can default with such significant oil reserves that should have supported its economy, and ability to pay, then other emerging market debtors with more risk and fewer crown jewels could face pressure. Keep an eye on assets in South Africa and Turkey.
All three of the major
U.S. ratings agencies downgraded Venezuela's sovereign's bond rating, and or those of Petroleos de Venezuela or Pdvsa, the state-run oil company, after President
Nicolas Maduro indicated last Thursday that he would
seek to restructure external debt. Bondholders have been invited to Caracas Nov. 13 to meet with Vice President
Tareck El Aissami and others; the VP has denied charges that he facilitated
drug trafficking that is alleged in U.S. sanctions.
"Venezuela has now not paid the coupons on 10 bonds for a total of $962 million in coupons all in their 30 day default period. (That does not include the maturity ($1.12 billion) and coupon ($47.6 million) due on the Pdvsa 8.5% of 2017 since Thursday)," Dallen writes. "The U.S. Treasury has seized over $500 million from accounts and properties belonging to El Aissami -- and that is just in the U.S."
Venezuela Is Teetering On Default