Venezuela Likely To Default In 2015 As Oil Prices Continue To Fall: SocGen

Venezuela will likely default in 2015, possibly in the first quarter, as crude oil continues to tumble, according to Societe Generale (SocGen).

“The move in oil reinforces my view that Venezuela is likely to default, with some probability in the first quarter and with a very high probability in the last quarter of next year,” Regis Chatellier, a credit strategist at Societe Generale in London, told Bloomberg by phone on Wednesday.

According to Bloomberg, Venezuelan bonds have lost 30% during the month through Tuesday and are the worst-performing in emerging markets.

Venezuelan bonds extended losses after Venezuelan President Nicolas Maduro said last weekend that he will keep a 6.3 bolivar-per-dollar fixed exchange rate for priority imports and said that he saw no need to curb fuel subsidies that keep the price of gasoline in Venezuela at 6 cents per gallon.

Maduro said there is no possibility of a Venezuelan sovereign default – unless it is part of a strategy to bolster economic development – however he said that no such plans are in place.

Venezuela’s benchmark bonds due in 2027 reached a 16-year low on December 15.

Petroleos de Venezuela, the government and state-owned oil company, will need to make $12 billion of interest and principal payments on hard currency debt in 2015. In order to pay such payments, they will need to tap into the nation’s already dwindled $21.4 billion of international reserves, while at the same time providing dollars to cover imports.

“At these debt levels, they may run out of reserves very quickly,” Chatellier said. “They have to continue to import because there’s no substitution, but at the same time they need to pay external debt. They can’t sustain that. They won’t make it.”

Source: Bloomberg