Venezuela Bankrupt? Caracas Fails To Make Sept 15 Interest Payment

Exactly one week ago, we wrote that a "Venezuelan default is only a matter of time".  We said that "while debt servicing has been a government priority, declining external liquidity and a deteriorating domestic situation (three-digit hyperinflation, shortages, and a political crisis between the government and the National Assembly) make it a daunting task. By 2020, the country must repay 30% of the external debt due to expire in the next 23 years."

Among other things we warned that "default seems inevitable in the medium term due to the prolonged period of low oil prices and increased US sanctions. President Trump's executive order of August 24, 2017, strengthened sanctions against PDVSA by prohibiting all transactions related to new debt with a maturity greater than 90 days and by forbidding Citgo from repatriating dividends in Venezuela."

Well, the default may have come in far sooner than even we expected as moments ago Bloomberg reported that according to sources, intermediaries tasked with processing Venezuela’s $185 million interest payment due Sept. 15 haven’t received the cash to do so.

It adds that "several holders of bonds due in 2027 haven’t received a payment", and that an "official at the public credit office in Caracas declined to comment on whether the funds have been transferred or when investors will receive them."

Further suggesting that Venezuela may have indeed entered its 30 day grace period, the country's National Office of Public Credit hasn’t made any public statements about transferring funds for the coupon. In the past, Bloomberg notes that the office has used its Twitter account to alert the market when the bond’s fiscal agent has been paid.

For now the bond market appears to not have noticed with Venezuela bond issues still trading at respectable levels.

That said, since 2009, Venezuela has borrowed at least $60 billion from China (through the Venezuelan-China fund) in exchange for selling oil at a discounted price. Loans were used to pay foreign manufacturers and repay external debt, such as in 2015. This exchange of good practices persisted as long as oil prices were quite high and Venezuela’s political situation was fairly stable. Since 2016, China has made a strategic move to reduce exposure to Venezuela which resulted in the repatriation of Chinese oil engineers (who filled local labour shortages), the end of financial aid, and reduced oil imports.

In this context, it may be unlikely that Venezuela will be able to count on China for repayment of its loans, which as we said last week, increases the probability of sovereign default in the medium term and may have manifested itself in what may be an event of default in just over three weeks if the Sept. 15 coupon payment grace period expires without the country transferring the required funds.


ParkAveFlasher peddling-fiction Wed, 09/20/2017 - 11:17 Permalink

Maduro is in over his head.Whatever may be the redemption fantasy that anyone may choose regarding the dollar, Venezuela likely has no gold and no production to trade, and over that, the key to unlocking the value of its oil reserves is hanging on a doorpost in Houston.Poor citizens of a rich nation, completely screwed by its own leadership.  There was a time when that people did not suffer for their buying and selling with the dollar.This is a clear statement on corruption and mismanagement inherent to a regime that does not respect the sacredness of property.

In reply to by peddling-fiction

Calculus99 Wed, 09/20/2017 - 10:58 Permalink

The curse of natural resources is a true concept.  Look at many of the most successful countries in the world, Germany, S. Korea, Sing, Japan, combined they have about 1000 barrels of oil and little or no mining (Germany has coal though). Better to have nothing much than a lot if you have competent people in charge. Therefore PEOPLE make the difference and not free gifts from nature...

Overleveraged_… Wed, 09/20/2017 - 11:00 Permalink

So even if Venezuela defaults... that will stop nothing. The fact of the matter is that any pain experienced from a Venezuela default can be recovered from within hours. Especially to US Equities. We can create new money to make up for the losses that any important companies may have experienced. And this will lead to more renewed optimism.Infact, a Venezuela default is BULLISH for global equities. I fully welcome it.There is not one situation I can think of which would get equities to turn south. The fact of the matter is that even if the Fed starts hinting at unwinding, the BOE, SNB, BOJ and ECB are still heavily easing and injecting new money into the system day by day. Back in the crashes of 2000 and 2008 this was not happening. People forget that it was all normal folks who were buying stocks back then. Now the 5 biggest Central Banks in the world own all the stocks.If Central Banks own all the stocks and don't sell them, how will this "crash" happen exactly? Thats why it won't happen.Honestly, this should make people happy. The markets are no longer tough to navigate and now everybody can expect 10% returns per year simply by being in stocks. Who cares if the value of the dollar goes down. If you have your money in cash you're a loser, if you've had your money in stocks you've been a big winner. 

DjangoCat Overleveraged_… Wed, 09/20/2017 - 11:39 Permalink

" The markets are no longer tough to navigate and now everybody can expect 10% returns per year simply by being in stocks. Who cares if the value of the dollar goes down"That all works while the Petrodollar commands the world.  Cracks are appearing in the USD fortress.  The rest of the world is getting tired of being screwed.What you are saying is that the whole thing is magical thinking, and wealth will increase forever, no matter what happens.  Just need to print more money.  This has never worked out well in the past.There are shocks to the system, which can rock the boat.  Major catastrophes, like the Houston floods and the Florida hurricane Irma, and the Mexican earthquake, all coming one over the other, cain drain liquidity.  More QE will be needed at a time when interest rates are already too low.  These events have the potential to crack the mirror and expose the fraud. 

In reply to by Overleveraged_…

rejected Wed, 09/20/2017 - 11:04 Permalink

It's what they deserve for making those loans in dollar terms.The US has defaulted often but only has to print up the needed funds. This advantage will slowly disappear.  The Yaun and Rouble will become the next much wanted currency unless people are stupid enough to go for the SDR.

syzygysus E.F. Mutton Wed, 09/20/2017 - 11:38 Permalink

Cher commands a bigger paycheck than TS.  Hell, she's well on her way to being a billionaire and is making even more hard cash with her Park Theater concerts in Las Vegas over the last few months. For what its worth, I'm not a big Cher fan, but did see her recent show and it was a monster.  You'd think she was 45, not 70+ and it was one of the best I've seen by any artist. And she can do a 5 minute plank.  Try that one at 70.  Most of the ZHers here probably couldn't get their fat ass off the ground for 12 seconds.

In reply to by E.F. Mutton

DjangoCat Wed, 09/20/2017 - 11:42 Permalink

I would support the idea of a default in Venezuela.  What are they waiting for?  Let the Yanquee dollar go.Like Iceland, they need to take the pain and move forward.  The rest of us will be licking our wounds.