Fitch cuts Venezuela after latest US sanctions

Fitch cuts Venezuela after latest US sanctions

Venezuela Bonds

Fitch Ratings has downgraded Venezuela to CC from CCC just days after the Trump administration imposed new financial sanctions on the country.

The rating agency said a default by Venezuela was now "probable" and that the sanctions further reduced financing options for the country and state-owned oil company PDVSA.

Last week, President Donald Trump issued an executive order prohibiting US institutions from any involvement in new bond and shares issued by Venezuela’s government and PDVSA and restricting their access to US bond and equity markets.

Venezuela's liquidity ratio, or central bank reserves and liquid foreign assets, was estimated at just 33%, relative to its external debt that has a residual maturity of less than a year, Fitch said. Gross international reserves have continued to decline this year, falling approximately $1.2bn to $9.8bn in the year through August.

While Venezuela has additional FX liquidity in government-run funds, they are believed to have declined and US sanctions will further hurt the country’s already weak external liquidity, Fitch said.

According to S&P Global Ratings, which downgraded Venezuela to CCC- from CCC last month, the government has only $3bn to $4bn in non-gold reserves.

With $2.8bn in debt payments due this year and $7bn due in 2018, Venezuela is under considerable duress to meet its obligations. PDVSA also has $4bn in debt payments due throughout this year.

Last month, PDVSA canceled a set of investor calls planned to inform and reassure the buyside about the company's ability to make its bond payments.