Crunch time is looming once again for Venezuela.
The sell-off in dollar bonds issued by Venezuela and state-owned oil company PDVSA picked up steam on Tuesday as the spiraling crisis in the South American country triggered fresh fears of a default ahead of a multi-billion bond payment due next week.
The country’s benchmark 2027 bond fell 3 per cent to a 10-month low of 44.6 cents on the dollar. Bonds issued by PDVSA also took a leg lower, with the note due in 2035 down 2.7 per cent at 43.1 cents on the dollar.
The cost of insuring Venezuelan debt against a default has risen sharply since last week after the country’s Supreme Court – which is controlled by President Nicolás Maduro’s socialist government – kicked off the latest chapter in Venezuela’s descent by moving to take over the opposition-dominated National Assembly.
Although the decision was quickly reversed on Saturday, the pushback against Mr Maduro’s creeping authoritarianism has done little to soothe market nerves, in keeping with the topsy-turvy logic that has come to define Venezuela.
Indeed, as some analysts have noted, the Supreme Court move to seize the last independent institution remaining in Venezuela would have also allowed Mr Maduro to create oil joint ventures without congressional approval, paving the way for the government to tap fresh sources of cash.
“Since such joint ventures are often accompanied by fresh financing it follows that the reversal of the Supreme Court’s ruling could actually make it a bit more difficult for the Maduro Administration to raise new funding [to make its bond repayments],” said Jan Dehn, global head of research at Ashmore.
The sell-off in Venezuelan bonds comes as PDVSA faces a $2.05bn bond repayment on April 12 and a further $3.5bn in payments in October and November.
By contrast, the country’s foreign reserves stand at just $10.4bn, according to the latest central bank data, while the cost of insuring PDVSA debt against a default has surged more than 668bps since Friday to 4,558.501 – the highest level since December 2016.
Siobhan Morden, head of LatAm fixed income strategy at Nomura, said that while she is not expecting a default next week, the government – having already slashed imports, liquidated much of its gold holdings and raided its foreign reserves – is increasingly running out of funding options.
The persistent decline in FX reserves and the delayed coupon payments last November have clearly heightened concerns about cashflow stress with fewer sources of financing, declining oil production and risk of increasing USD liabilities that increases the sensitivity of cashflow to oil prices. The latest decline in oil prices would shave off around $3bn in annualized revenues, which could be manageable but clearly reduces already a narrow margin of flexibility.
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