Oil price drop fuels Venezuela fears
By Davide Scigliuzzo
NEW YORK, Oct 17 (IFR) - Tumbling oil prices caused Venezuela's international bonds to slide to five-year lows this week, re-igniting fears of a potential default for the dollar-strapped sovereign.
The country's 9.25% 2027 notes dropped by as much as 10 points in four days to a low of 54.5 on Thursday, while some of the most liquid notes issued by state-owned oil company PDVSA suffered similar losses, ending up in the low 40s.
Five-year credit default swaps for the country, which is home to the world's largest oil reserves, widened by as much as 514bp over the same period to reach 2,223bp on Thursday, indicating a default probability of close to 80%.
While the government has reiterated its commitment to servicing foreign obligations, a 20% slide in oil prices over the last few months has raised questions about Venezuela's ability to fulfil that promise.
Brent prices, which on Thursday reached a four-year low of US$83 a barrel, are already below the breakeven threshold for a number of oil exporters, including Bahrain, Oman, Saudi Arabia, Nigeria, Russia and Venezuela, according to Deutsche Bank.
The bank estimates a breakeven price of around US$160 for Venezuela. Even after accounting for a devaluation of the Bolivar from the current official exchange rate of 6.3 to 15.0, that level declines only to US$117, well above current prices.
"A price of US$95 per barrel is already a stress level for Venezuela, so this is definitely going to add some strain on the balance sheet of PDVSA and the sovereign," said Ben Ramsey, a Latin America analyst at JP Morgan. "But looking at their maturity profile, I don't see a hurdle that they can't climb over if they manage it properly and make the necessary adjustments."
Venezuela's upcoming maturities include a US$3bn bond issue from PDVSA coming due at the end of October and around US$4.7bn in principal to repay in 2015, according to Thomson Reuters data. Continuación...