Venezuela & Oil Debt: “Default Probable,” Fitch
Says, by Dimitra DeFotis, 2/2/17
Venezuela's
state-controlled oil company Petroleos de Venezuela (Pdvsa) has to come up with
$10 billion for debt payments due this year withless than $2 billion in cash to
tap, Fitch Ratings says.
What
is the likelihood of default, with $12 billion in estimated total reserves? Fitch concludes in a Jan. 31 report that "Pdvsa’s
rating suggests that default is probable."
Pdvsa owns
three Citgo refineries in the United States, which could make things
interesting for new Secretary of State Rex Tillerson as he chats up the governments in China,
Russia and Venezuela. Venezuela recently penned a debt deal with Russia that
used U.S. Citgo assets as collateral, and oil producers ConocoPhillips (COP) and
Chevron (CVX) are
among the companies suing.
As
former CEO at ExxonMobil (XOM), Tillerson had a "long, troubled history in Venezuela," Public
Radio International noted
in a recent story. As Venezuelan governments
nationalized
foreign oil assets, most recently in 2007, Exxon received $1.4 billion for
property valued at $15 billion, PRI reports.
In
the update on its CC default rating on Pdvsa debt (non-investment grade "junk")m Fitch estimates that
Pdvsa has less than $12 billion in total reserves. If the government
defaults on payments and Venezuela had
a late-payment scare last fall, Fitch estimates Pdvsa bondholders would
recover 31% to 50% of their investment, but "closer to the lower end of
the range, upon a default."
Venezuela's
government is running out of options to boost cash flow and avoid default,
though it has tapped China and Russia for loans, and it could use currency
injections to mask the debt burden. It also could raise gasoline prices to
improve Pdvsa's cash flow, though that's the least likely option going forward.
Some
data from the Fitch report: "Venezuela faces $7.1 billion in principal
payments and approximately $3 billion in interest payments due in 2017.
Pdvsa has
current cash of between $1 billion and $2 billion following a recent
transaction with Russia’s oil and gas company Rosneft (ROSN.UnitedKingdom).
This cash
position is "very low for a company the size of PDVSA as it only covers 15
days–20 days of operating expenses. Companies of similar size maintain a cash
position close to $5 billion - $10 billion, mostly as operational cash."
Assuming oil
prices of $45 per barrel in 2017, and investments of $9 billion annually,
PDVSA’s liquidity position will continue to be under pressure. Venezuela’s
gross international reserves have declined by more $4 billion to $11.7 billion
between January and November 2016.
Of debt
coming due in 2017, Fitch estimates $4 billion is cross-border issuance, and
the balance is bilateral and other debt, most of which is denominated in U.S.
dollars. In Fitch’s view, PDVSA’s short-term maturities are high compared with
the company’s liquidity position and an estimated negative free cash flow.
'PDVSA’s
rating suggests that default is probable. If a default occurs, Fitch
anticipates an average recovery of 31%–50%, with outcomes at the lower end of
the range most likely, due to the willingness of the Venezuelan government to
extend concessions to investors. If an average recovery does not significantly
improve cash flow availability to the government, it may lead to additional
defaults in order to further reduce obligations and allow for necessary
transfers to the government' ..."
http://www.barrons.com/articles/venezuela-oil-debt-default-probable-fitch-says-1486055731
Socialism
has destroyed Venezuela. State corporate takeovers, strict price controls, and
a food rationing system have left the country poor, sick, and literally
starving. Socialist political repression has
killed countless Venezuelans in
the past decade and put an untold number of others in the nation’s notoriously
violent prisons.
The United Socialist Party of
Venezuela (PSUV), the vehicle late
dictator Hugo Chávez used to consolidate power and posthumously hand it over to
Nicolás Maduro, has forced the OPEC nation with the world’s largest oil
reserves to import
oil from – of all places –
capitalist bogeyman America.
VIDEO
Venezuela court backtracks to quell
outrage - The party, however, remains in power, challenged by a fractured
opposition whose members have deep ties to the Socialist International. If
socialism destroyed Venezuela, socialism cannot save it, and the leaders of the
opposition appear to be learning this the hard way.
The seemingly ceaseless protests intensifying
in 2014 but growing ever violent today and
the populous Venezuelan diaspora largely resettling in Florida prove socialism
not merely a failed ideology, but a vastly unpopular one.
Declining support from allies like
China and Russia (and, even worse, continued support from Syria and North Korea) prove little hope remains in the
long-term stability of the Maduro regime internationally, either. A robust and
organized opposition should have a firm chance of reclaiming the future of
Venezuela for Venezuelans.
And yet the Venezuelan opposition
has largely failed. Its biggest victory was the reclaiming
of the National Assembly, the federal
legislative body, by majority in December 2015. Then, a coalition of political
parties known as the Democratic Unity Roundtable (MUD) promised to use its
lawmaking power to free the nation’s political prisoners, rehabilitate the
nation’s economy, and topple the then-sixteen-year-old socialist dictatorship.
The MUD has failed in all its
objectives. The nation’s most prominent political prisoner, Leopoldo López of
the Popular Will party, remains behind bars, serving
a 14-year sentence for organizing peaceful
protests against the government.
The economy is worse than ever,
heading for a record 1,600 percent inflation this year, according to International Monetary Fund (IMF) estimates. The dictatorship, meanwhile, appears rejuvenated,
having barred
the National Assembly from passing laws and stripped Henrique Capriles Radonski,
the governor of Miranda state and opposition presidential candidate, of his
title and right to run for public office this week.
In addition to promising to expand
individual freedom in Venezuela, the MUD vowed to use internationally mediated
dialogue to get the Maduro government to agree to its demands. Under the
watchful eye of the Vatican, MUD representatives wasted much of 2016 attempting
to get Maduro representatives to speak with them, never mind discuss their
concerns. By December 2016, the talks had collapsed entirely, with Capriles
personally accusing Maduro of “making
a mockery of the Pope.”
Many opposition supporters wondered
why the MUD held so strongly to the idea of friendly talks with a regime that
had imprisoned, tear-gassed, killed, and wounded so many in the opposition –
why it had not taken aggressively to toppling socialism in Venezuela.
As the talks collapsed, one
international entity appeared consistently supportive of the opposition efforts
for dialogue, however, condemning the socialist government and baffling casual
observers: the Socialist International.
Three of the five articles currently
on the Socialist International’s homepage are
condemnations of the socialist government of Venezuela. A photo of Leopoldo
López behind bars adorns the page. The most recent article condemns
the attempt by the nation’s Supreme Court to usurp the National Assembly’s
power, calling for “an end to the denial, obstacles and impediments so that the
National Assembly of Venezuela, elected by all Venezuelan citizens, can
immediately resume its legislative work, with full recognition of its members’
parliamentary immunity.”
“This crisis has inexorably hit the
people in Venezuela following poor, authoritarian and centralize [sic]
leadership that is indifferent to the suffering caused by its actions,” the
article concludes. Note the adjectives used to describe Venezuela’s government:
“poor,” “authoritarian,” “centralized.” Notably absent is the adjective with
which the regime identifies most: “socialist.”
The Socialist International has
invested so heavily in supporting Venezuela’s opposition for the simple reason
that a number of MUD coalition parties are also members of the SI, and among
the Vice Presidents of the organization is Henry Ramos Allup, the head of the
Democratic Action Party (AD), both an SI and MUD member.
Four SI members parties operate
in Venezuela: (AD), Popular Will, Movement for Socialism (MAS), and A New Era
(UNT). Three of the four are members
of the MUD. The fourth, Popular Will, advocates in their manifesto for the second-generation human rights popularized
at the United Nations by the Soviet Union: “the right to a comfortable home…
the right to fresh food, potable water, health care, and medicine… the right to
education.”
The result of this relationship
between the SI and the allegedly anti-socialist Venezuelan opposition has been
a stunted attempt at restoring fundamental rights and freedoms. With its undue
respect to the constitution of Venezuela implemented by Hugo Chávez in 1999 and
failed dialogue with Maduro, the MUD has been the target of increasing
frustration on the part of opposition leaders unaffiliated to the SI, like the
aforementioned Capriles and legislator María Corina Machado. This socialist infiltration has not only
paralyzed the opposition but threatens to deform the future of a Venezuela
without Maduro into something that looks quite a bit like the country’s present
and recent past.
Without abandoning socialism,
Venezuela will never save itself from socialism, and the sooner opposition
leaders realize that the more damage to the nation they can prevent.
No comments:
Post a Comment