Venezuela Bonds Steady After Vote, as Investors Await Clarity on Sanctions
Venezuelan bonds were steady early Monday as investors awaited word on U.S. sanctions that could impact one of the South American nation's most crucial sources of revenue: Oil sales to the U.S.
State-owned oil producer Petróleos de Venezuela S.A.'s bonds due in November were flat in New York trading Monday and have tumbled 13.5% this month, according to Thomson Reuters data. Prices for the government's bonds due in 2038 were down 1.7% Monday and have fallen 9.2% this month.
Following an election Sunday spearheaded by President Nicolás Maduro that will give his administration broad powers to redraft the constitution, U.S. government officials were considering stepping up sanctions against Venezuela that could target its oil industry by making it more difficult for Venezuela to import refined products from the U.S., which it uses to dilute its extra heavy oil to make it suitable for export.
Investors and analysts are increasingly worried about whether Venezuela will be able to make a total $725 million in debt payments over the coming month amid the country's political and humanitarian crisis. U.S. government officials have told the Journal that the move to step up sanctions could come as early as Monday.
Venezuela's credit-default swap spreads spiked on Friday and remained steady Monday, with the probability of default within a year reaching 62%, the highest since February 2016, when oil fell below $30 per barrel, according to Victor Fu, an emerging-market strategist at Stifel Nicolaus & Co Inc.
Last week, the U.S. levied sanctions on 13 high-ranking officials in the Venezuelan government, a move that was quickly complemented by Colombia, Panama and Mexico.
A ban on Venezuelan crude imports, which is regarded one of the boldest options, would essentially cut off the country's largest source of dollar revenue. About 95% of Venezuela's export revenue comes from the oil sector, according to S&P Global Ratings. In 2016, Venezuela derived $10.5 billion from its crude exports to the U.S., or $28.7 million a day, according to Stuart Culverhouse, chief economist at Exotix Partners, a U.K.-based investment bank.
"I know that the U.S. doesn't want to take a draconian approach because there would be economic and political implications," said Siobhan Morden, head of Latin America fixed-income strategy at Nomura Securities International. "But some of these intermediate steps -- we wonder about sanctions on particular transactions. Would those impair secondary bond trading? New issuances? It's a learning curve for everyone to understand this incremental sanctions policy."
The country appears to have little room to maneuver if it loses export revenues. Its international reserves briefly dipped below $10 billion in recent days, the lowest in 15 years, according to Venezuela's central bank. But S&P analysts estimated that only about $3 billion was liquid, with the rest in gold.
Write to Julie Wernau at Julie.Wernau@wsj.com and Carolyn Cui at carolyn.cui@wsj.com
(END) Dow Jones Newswires
July 31, 2017 10:38 ET (14:38 GMT)