Venezuela Bond Default Probable Fitch Downgrade Says

Fitch Ratings downgraded Venezuela's sovereign bond ratings deeper into junk territory, saying the imposition of U.S. sanctions last week further reduces government financing options and means "default is probable."

Fitch said it expects Venezuela's inflation to catapult from an average of 360% in 2016 to over 600% by the end of this year due to foreign exchange rationing, monetary financing of the fiscal deficit and price adjustments to counter scarcity. Fitch lowered Venezuela's long-term foreign and local currency IDRs, senior unsecured debt and the country ceiling to CC from CCC, and affirmed short-term foreign and local-currency IDRs at C. From the press release:

" ... sanctions on Venezuela by the U.S. government on Aug. 25 ... prohibit U.S. persons or entities based in the U.S. from a series of financial transactions with the government and government-controlled Petroleos de Venezuela (Pdvsa), including any dealings in new debt as well as dealings in certain existing bonds owned by the Venezuelan public sector and dividend payments to the government of Venezuela.

Venezuela's external liquidity ratio was weak before the sanctions at just 33% (the stock of central bank international reserves plus the banking system's liquid foreign assets relative to external debt with a residual maturity of less than one year). Gross international reserves have declined by nearly $1.2 billion in the year through August to $9.8 billion. Venezuela has additional FX liquidity in government-managed funds, but these have likely declined and remain opaque in their administration and execution. The U.S. sanctions will exacerbate the country's already-weak external liquidity.

http://www.barrons.com/articles/venezuela-bond-default-probable-fitch-downgrade-says-1504129573