Default watch on Venezuelan bonds

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Venezuela is in danger of defaulting on bond payments in the next few weeks.

10/17/17 – Miami Herald – Maduro faces financial nightmare in Venezuela – just in time for Halloween – The government has bond payments of $1B due on 10/27 and $1.2B due on 11/2.  Total due in next six weeks, which would be the end of November, is a total of $3.53B. Both S&P and Fitch are rating Venezuela as having a high probability to default within 6 months.

Here some more of the detailed numbers:

10/20/17 – CNBC – Venezuela is blowing debt payments ahead of a huge, make-or-break bill – Here is a schedule of upcoming required bond payments:

  • $0.35B – due last week – these coupon payments have a 30 day grace period, meaning they don’t have to be paid until mid-November
  • $0.841B plus interest for total of around $1B per above article – due 10/27/17 – no grace period
  • $1.2B maturing bond – due 11/2 – no grace period
  • $3.4B – article says this is the total obligation for 2017, without spelling out where the other roughly $1B is, whether it is interest on the above payments or another principal balance

The country skipped the $0.35B coupon payments which were due last week. Those payments have a 30 day grace period, so they won’t be in default for another three weeks or so. Article speculates the two government-run companies with that debt are taking advantage of the grace period in order to conserve cash for the two huge payments.

Article says the bond market has priced in a 15% probability of a default. One specific analyst is quoted as saying he thinks the likelihood is close to 40%.

Another analyst is cited as saying the country has another round of serious payments in 2018 with a default likely in 2019.

Sanctions have left Venezuela basically in a position of being locked out of the capital markets, meaning they will not be able to raise any more money by additional borrowing.

In another intriguing tidbit, the article says Russia is covering the liquidity with cash infusions, but at a high price. A very brief comment says Russia is buying Venezuelan assets at “fire sale prices.” That means once Venezuela recovers (either because the current president makes an already failed system defy all of recorded human history and somehow a socialist economy becomes prosperous or because the government is toppled and economic sanity is restored) Russia will own a large portion of the country’s productive assets.

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