Election-bound Caracas poised to avert default

OREANDA-NEWS. Venezuela's government and state-owned oil company PdV have eluded a threat of default on a combined \\$6bn of foreign debt due on 28 October and 2 November, according to foreign bankers, financial analysts and current and former Venezuelan central bank officials consulted by Argus.

The collapse in oil prices in mid-2014 and shrinking hard currency reserves had sowed expectations that Caracas would not be able to meet its financial obligations.

The government and PdV must pay combined debt principal and interest of \\$3.79bn on 28 October, and another \\$2.31bn on 2 November.

The total is equivalent to almost 38pc of current foreign reserve assets of \\$16.1bn, including about \\$1.7bn in cash.

President Nicolas Maduro reiterated this week that Venezuela's government has never failed to pay its foreign debts on time since it first came to power in 1999.

Venezuela will fully meet its upcoming debt obligations even though the country has been battered by an over 50pc oil price drop this year and is the target of "a financial blockade," Maduro said.

The central bank's current foreign exchange reserves are "more than sufficient" to cover the near-term debt obligations, an aide to economy minister Marco Torres tells Argus.

The government and PdV also have "additional resources and options" including new bond issues that could be placed privately with the central bank or other Venezuelan public entities, additional central bank gold swaps, and more sovereign and PdV debt buybacks financed through vehicles like PdV's pension fund, the economy ministry official adds.

The government is also compiling an inventory of other assets worth up to \\$30bn that could be liquidated to raise more cash, according to the economy ministry.

Details of these state-owned assets have not been disclosed, but PdV has been trying to sell its overseas assets including PdV's US downstream subsidiary Citgo and its 50pc stake in the European refiner Nynas.

Despite financial hardship characterized by galloping inflation and extensive shortages of basic goods, the government will not default this year for electoral reasons, according to three National Assembly legislators with the ruling PSUV party.

"A default before the National Assembly elections on 6 December would be disastrous for the PSUV and even could threaten the survival of the Maduro presidency within his own party," a senior party legislator tells Argus.

Polls commissioned by the PSUV national committee show that over 80pc of registered voters blame the Maduro government for the country?s deep economic crisis.

Maduro said this week that the December election will be "the most difficult" the Bolivarian revolution and PSUV have confronted.

But he warned that a loss of the ruling party?s legislative majority would spark political violence as soon as January 2016.

While Caracas appears to have averted a default this year, the outlook for 2016 is uncertain. Venezuela's government and PdV face combined debt maturities of \\$10.3bn in 2016, including \\$1.5bn due in the first quarter.

The IMF's new world economic forecast predicts that Venezuela's economy will contract by up to 10pc in 2015, with inflation reaching 160pc this year and 200pc in 2016.

Venezuela's central bank has not issued any macroeconomic data since third quarter 2014. But partial figures obtained from the economy ministry show the country's GDP shrank 4pc during the first nine months of 2014, with full-year inflation of 68.5pc.

The economy ministry's figures indicate that Venezuela needs an oil price of \\$100/bl to cover its external deficit.

PdV's 2015 year-to-date average export price was \\$47.60/bl as of 2 October, compared with a full-year 2014 average price of \\$88.42/bl.

For PdV, which generates over 96pc of Venezuela's annual hard currency revenue, the more than \\$40/bl decline in PdV's average export price so far this year compared to last year's average is equivalent to an almost \\$29bn plunge in oil export revenues.

Venezuela's total export revenues in 2014 were about \\$66bn, including PdV's oil exports, according to the economy ministry. The country's total exports in 2015 could be almost 50pc lower due to the steep oil price decline.

The economy and energy ministries expect soft oil prices will persist until 2017 or later, barring unforeseen market disruptions or geopolitical events.