The Time Has Come: Venezuela May Be In Default In Under 48 Hours
This past weekend, Venezuela failed to make $237 million in bond coupon payment, blaming “technical glitches” when in reality it simply did not have the money (or wish to part with it). Adding the $349 million in unpaid bond interest accumulated over the past month as of last Friday, that brings Caracas’ unpaid bills to $586 million this month, just days before the nation must make a critical principal payment. And, as BofA sovereign debt analyst Jane Brauer writes, while the bank’s base case assumption is that Venezuela will make its debt service payments this year, “the probability of a short term default has increased substantially with coupon delays” and it could come as soon as this Friday, when an $842 million PDVSA principal plus interest payment is due, and which unlike typical bond payments does not have a 30 day grace period but instead is followed by a second $1.1 billion PDVSA coupon on Nov 2, also without a 30 day grace period.
As Brauer writes, Venezuela has been in as similar situation of payment uncertainty in the recent past, with bond prices plummeting right before a big payment. For example, just before a big principal payment was due in April 2017 Venezuela received a $1bn loan from Russia just one week before the due date. At that time Ven 27s dropped 16% in a month (from $52 to $45) and recovered completely within a month. Ven 27 has fallen to $35, as Venezuela has demonstrated that it will be a challenge to make all payments on time. The difference between now and April is that coupon payment delays then came after, not before the payment.
Meanwhile, Venezuela has managed to redefine the concept of payment “on time” which now means “by the end of the grace period”
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