NEW YORK, Jan 20 (IFR) - Slumping crude prices have investors bracing for a messy default in Venezuela, where the sovereign and state-owned oil company PDVSA have some US$10bn in external debt payments due this year.
With crude hovering around US$28 per barrel, Venezuela - which on Wednesday reportedly requested an emergency OPEC meeting - could have trouble satisfying its obligations
Barclays said the country will have difficulty avoiding a credit event in 2016 - and that is based on the bank’s forecast of US$37 oil, almost $10 higher than current prices.
That sentiment seems to be widely shared in the market, even though President Nicolas Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes.
“It is a question of when, not if,” said Russ Dallen, a partner at Latinvest in Miami, referring to the possibility of a default.
“The only thing that could change that is a sharp recovery in oil prices, and/or a bailout from Venezuela’s friends in China, Russia or Iran.”
Venezuela was able to stave off its troubles last year, leaving no stone unturned in efforts to drum up short-term financing.
It filled gaps through cashing in PetroCaribe loans at a steep discount, gold swaps and issuing high-yield bonds through PDVSA’s US subsidiary Citgo.
But many of these sources are now exhausted, and analysts think the country has few options left as the sovereign and PDVSA face some US$10bn in external bond payments this year.
“The ability to pay is definitely getting trickier day after day,” said Yong Zhu, senior portfolio manager at DuPont Capital Emerging Markets Debt Fund.
“If oil stays where it is, Venezuela has a big gap to fill, and no one knows how long oil prices can stay where they are.”
Much of the debt coming due this year was issued by PDVSA, not the sovereign, and does not carry collective action clauses - which could make a sticky situation even more difficult.
Without CACs, Venezuela could be held hostage by minority investors even if the majority agree to a restructuring, said Pablo Venturino of investment firm White-Bridge Capital.
“In the case of PDVSA, you don’t have CACs,” said Venturino who worked on one PDVSA’s largest issues in 2007 when he was a banker with ABN AMRO.
“It is something you need to analyze and hasn’t been reflected in the price.”
For the moment, the market seems confident that Venezuela will meet its next commitments: US$2.228bn in principal and interest on PDVSA and Venezuela bond payments due next month.
The sovereign’s 5.75% 2016s, which have a payment due next month, were trading at a mid-market price of around 92 cents on the dollar on Wednesday, up close to five points since Friday.
“We thought it was oversold, so we bought last week at a price just under 86,” Edwin Gutierrez, head of emerging market sovereign debt at Aberdeen Asset Management, told Reuters News.
“We believe that payment risks were overstated, and hence bought the bonds.”
But debt maturing later in the year is getting a much cooler reception in secondary trade. The PDVSA 2016s, which mature on October 16, are trading at a mid-market price of 57.00.
And with crude at such depressed levels, the view on the horizon remains grim.
According to Barclays, even if oil hits US$37 - and Venezuela cuts imports by US$7bn and musters up US$6.7bn in financing - it will still need to raise US$22.7bn in 2016.
“Economic change is not happening fast enough, unless (President) Maduro announces some measures via (last week’s) emergency economic decree,” said Siobhan Morden, head of Latin American strategy at Nomura, noting that the opposition now has a majority in the National Assembly.
“To get more a rational economic framework and avoid default, you require the opposition to be in charge - and right now Maduro is pushing back.” (Reporting By Paul Kilby, Tariro Mzezewa and Davide Scigliuzzo; Editing by Marc Carnegie)