| Venezuelan President Nicolas Maduro (Luis Astudillo C / Agencia Andes) |
The sovereign might consider a debt deal with Jamaica similar to that agreed with the Dominican Republic recently, as it attempts to improve its cash position, Lucila Broide, head of Latin American sovereign research at Oppenheimer, has said.
The Dominican Republic repaid $1.93bn of PetroCaribe debt lent by PDVSA at a steep discount last month, and Jamaica may be next country in the line, said Broide. If the Caribbean nation were to sign a deal in similar conditions, it would pay around $1.5bn to PDVSA — offering sharp relief to the company’s finances.
A debt deal with Jamaica would follow Venezuela’s unveiling of a new FX system last week which is aimed at increasing the dollar supply. It would also come after PDVSA’s US subsidiary Citgo has secured $2.5bn in a financing package that includes a loan and a bond.
“The capacity to pay and secure enough funds to run the country is in doubt, given the drop in oil prices,” Broide told LatinFinance. “But each of these moves reinforces the idea that the country’s willingness to pay is strong, and that, together with a recent increase in oil prices, is helping the bonds.”
The sovereign could launch an exchange offer to extend the maturity of its debt, particularly the $11bn of amortizations due before the end of 2017, said Walter Molano of BCP Securities in a research note.
Or, it might look at more substantial measures, such as selling Citgo or raising gasoline prices internally – a move that could trigger further social unrest in a country used to rock-bottom gas prices, analysts said.
Default chances rise
In the medium term, investors are close to certain that Venezuela will default: the CDS market forecasts a 94% probability of default over the next five years, a source said.
“Clearly it’s a very shaky situation, but the market has responded somewhat positively over the last month, because oil prices have increased and then some of these measures are a bit of a recognition that they may need to make more changes to the FX regime,” said Bret Rosen, managing director for research at Jamestown Latin America.
The country’s bonds have picked up on the back of stronger prices in recent weeks. Venezuela’s Global 2027 bond was seen yielding 23% on Wednesday afternoon, down from 28% about a month ago, while PDVSA’s 2022 were spotted yielding 28% down from 39%, according to a source.
Barclays said Venezuela’s willingness to pay seemed strong, but that the measures it had taken did not seem sufficient to ensure the capacity to pay its debt under a scenario of low oil prices. Jefferies analyst Siobhan Morden, meanwhile, said Venezuela’s strategy consisted of buying time to survive “day to day”.
Ultimately, the type of profound changes needed to push Venezuela away from the path to default would only take pace if there is a change in the government, analysts said.
“The social situation is quite tense … at the end of the day it’s a very weak government,” Rosen said.
“It has very low support and, ideologically, these guys may not want to go down a more disciplined path, but it has become very hard for them to take more pragmatic measures because they are unpopular and the political situation is very fragile.” LF