Bonds, Commodities, Currencies, Emerging Markets

Venezuela’s Rating Cut To ‘CCC’ By Fitch As Oil Tumbles

Venezuela dirty flagFitch Ratings has cut Venezuela’s credit rating on Thursday amid the sharp fall in global oil prices and the country’s dwindling International reserves of $21.4 billion – which are around half the level of end-2008 when Venezuela last faced a sharp fall in oil prices which led to the global financial crisis.

Fitch Ratings cut Venezuela’s rating on foreign-currency bonds by three levels from ‘B’ to ‘CCC’, which is eight levels below investment grade.

From the Fitch statement:

“International oil prices have declined sharply in Q4’14 increasing balance of payments pressures in the context of reduced external financing flexibility and rising macroeconomic instability. Venezuela’s commodity dependence is high, as oil is expected to account for an estimated 92% of current external receipts (CXR) and 50% of central government revenues in 2014. Low oil prices will erode the main source of FX for the economy.”

“The capacity of the Venezuelan economy to respond to this external shock is constrained by the relatively low level of international reserves, constraints to their operational liquidity, and limited sources of external financing. International reserves, at USD21.4 billion, are about half the level of end-2008 when Venezuela last confronted the sharp oil price decline resulting from the global financial crisis. In addition, operational liquidity of reserves is constrained, as 72% of international reserves are held in gold and most of these are held at the central bank in Venezuela. Nontransparent off-budget FX funds will likely come under pressure, as central bank and extraordinary oil revenue contributions will be curtailed.”

“Venezuela’s sources of FX financing are limited, the sovereign does not have direct access to international debt markets, and significant multilateral funding is not expected in 2015-2016; China remains the sovereign’s main source of financing. Nevertheless, there is no indication that China will increase its exposure to Venezuela beyond the roll-over of existing facilities.”

Venezuelan President Nicolas Maduro last week said that credit rating companies were behind a campaign to force Venezuela to default on its bonds.

Standard & Poor’s (S&P) downgraded Venezuela’s rating to CCC+ on September 16 and Moody’s cut the nation’s rating to Caa1 last year.

Source: Fitch

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