Fitch: Venezuela's Credit Constraints Remain After PDVSA Swap

NEW YORK--(BUSINESS WIRE)-- Petroleos de Venezuela SA's (PDVSA's) bond swap, agreed with investors on October 24, will reduce Venezuela's short-term foreign currency financing requirements. However, the absence of fresh material sources of external financing, deteriorating oil sector dynamics, lack of progress in fiscal policy adjustments and increased political tension continue to weigh on the sovereign's credit profile, Fitch Ratings says.

This week PDVSA reached an agreement with a subset of its creditors that hold USD2.8 billion of its bonds that were to mature at the end of 2017. The deal will exchange some of those notes for new debt with annual payments through 2020 and higher face values, higher coupons and a 50% equity stake in CITGO.

Venezuela's external financing constraints remain significant, though this agreement could lower Venezuela's external financing needs and the sovereign does not have principal payments until 2018. Challenges include a weakened international reserves buffer (USD12bn), no apparent access to material foreign exchange financing (as new net financing from China remains uncertain), and the economic and social pressures of maintaining or increasing import compression. Even after the PDVSA swap, the external financing gap could remain close to USD8 billion in 2017.

While the oil price for the Venezuela mix has recovered from 1Q16, the YTD average of USD33.80/b is 25% below the 2015 level. While Fitch forecasts average prices for Brent of USD45/b in 2017 and $55/b in 2018, respectively, production declines could cap the benefits of the price recovery. After a decline of 120,000 barrels per day in May alone, Venezuela's oil production has maintained a downward trend, declining by 12% yoy in September.

Venezuela's policy direction continues to be uncertain as Minister Perez Abad, who had publicly led the effort to reform the FX market, was dismissed in early August. Divisions within the government regarding the course of economic policy remain. The absence of official information regarding growth, inflation and balance of payments in 2016 further increase uncertainty about the depth of the ongoing economic crisis.

The risk of social unrest is high. The opposition-controlled National Assembly has clashed with the government. Most recently, the Maduro administration bypassed the National Assembly to gain approval of the budget. The opposition-driven recall referendum process was suspended, leaving no obvious route to resolve the current political deadlock.

Fitch rates Venezuela 'CCC' reflecting its weak external buffers, high commodity dependence, rising macroeconomic distortions, reduced transparency in official data, and continued policy and political uncertainty. The sovereign's strong repayment record and its manageable amortization profile mitigate any imminent risks to debt service.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

View source version on businesswire.com: http://www.businesswire.com/news/home/20161027006010/en/

Fitch Ratings
Erich Arispe
Director
Sovereigns
+1 212 908-9165
or
Rob Rowan
Senior Analyst
Fitch Wire
+1 212 908-9159
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• KKR Invests in Indian Ticketing and Live Entertainment Platform BookMyShow
• CREDIT SUISSE HIGH YIELD CREDIT FUND ANNOUNCES BOARD APPROVAL OF A REVERSE SHARE SPLIT
• One Piece, Multiple Ways to Tackle Seasonal Temperature Swings – COOFANDY Creates a Summer-to-Fall Transitional Wardrobe Solution for Men