UPDATE 3-Venezuelan bonds slump on ratings cut, economy concerns

miércoles 17 de septiembre de 2014 15:39 GYT

(Adds details and context on credit rating)

By Brian Ellsworth

CARACAS, Sept 17 (Reuters) - Venezuelan bonds tumbled on Wednesday following a ratings downgrade by Standard & Poor's that further fueled worries about the country's capacity to service debt amid soaring inflation and economic contraction.

Investors have become increasingly concerned about the country's economy, which is widely believed to have slipped into recession this year, and worry that President Nicolas Maduro is delaying reforms needed to shore up government finances.

The country's benchmark Global 27 bond fell 3.3 percent, pushing its yield to 14.153. State oil company PDVSA's benchmark bond maturing in November 2017 fell 4.6 percent to bid 77.250 with a yield of 23.087 percent.

S&P said it cut Venezuela's long-term sovereign credit ratings to "CCC plus," pushing the country's bonds into the deep trenches of junk status. The rating implies "at least a one-in-two likelihood of default over the next two years," S&P said.

"While solid oil revenue (estimated at US$82 billion for 2014) will continue to provide dollar inflows, the government could come under greater strain to service its rising level of external debt maturities," it said.

The majority of emerging market sovereign credit ratings are below investment grade, with many Latin American countries in the lower levels of junk status.

Venezuela's top business group, Fedecamaras, estimates the economy shrank 4 percent in the first semester as businesses struggled to import raw materials and machine parts because of a dollar shortage caused by currency controls.   Continuación...