Venezuela debt defaults pile up with fresh S&P warning

Venezuela moved closer to a possible all-out default on Wednesday, with ratings agency S&P Global saying the country had failed to make repayments on two more loans.

The oil-rich, cash-poor South American country failed to make $237 million in payments on bonds due 2025 and 2026, now past their 30-day grace period, the US ratings firm said in a statement.

It warned of a "one-in-two chance that Venezuela could default again within the next three months."

"Two additional coupon payments are overdue, but within their grace period. We could lower the ratings on the following issues to 'D' if the government fails to pay within the stated grace period," S&P Global said.

It and other ratings agencies had already declared Venezuela and state-owned oil company PDVSA to be in "selective default" due to the late payments on multiple bond issues.

The piling up of bad debt pushes Venezuela ever closer to a point when either it will declare outright default of all its sovereign and PDVSA debt -- or creditors do. 

Such a scenario could see creditors' lawyers line up in US courts to demand the right to seize Venezuelan assets abroad.

If PDVSA tankers, oil shipments and refineries were grabbed, that would cripple Venezuela's ability to sell its crude -- and the oil company is the primary source of income for the country, which sits atop the world's biggest oil reserves.

The country has an estimated debt burden of up to $150 billion, yet less than $10 billion in hard currency reserves.

- US sanctions -

It had been up-to-date on principal payments on its loans until early this month, when Venezuela's President Nicolas Maduro said he wanted to restructure the sovereign and PDVSA debt. 

The country has to pay back at least $1.47 billion in interest on various bonds by the end of the year, and then about $8 billion in 2018.

S&P said it would "very likely" consider any Venezuelan restructuring equivalent to a default. 

"In addition, in our opinion, US sanctions on Venezuela and government members will most likely result in a long and difficult negotiation with bondholders," it said.

 © AFP
Venezuela's debt repayments schedule 
© AFP Gustavo IZUS
The sanctions from Washington, which has labeled the Maduro regime a dictatorship, prohibit US individuals and banks from buying new Venezuelan bonds, usually a requirement for any debt resolution.

A special creditors' committee meeting under the aegis of the International Swaps and Derivatives Association has also declared a default of payment on three PDVSA issues.

If more than 25 percent of Venezuela's creditors determine that a default is occurring, that could trigger something called "acceleration," where all creditors can ask to be repaid in full immediately. 

Venezuela is incapable of meeting such an obligation, and has long had insufficient funds to pay for both debt servicing and for imports of food and medicine needed by its population.

"A default wouldn't affect just the government but also the population, for whom that could be infinitely worse, because we're talking about a fragile population," said Venezuelan economist Luis Vicente Leon.

Many Venezuelans are already starving under what they mockingly term the "Maduro diet." Medicines for serious ailments such as cancer are almost impossible to procure.

On top of all that, oil production at PDVSA has dropped markedly in the last couple of months.

"The government's worsening financial problems and complications stemming from US sanctions will make it increasingly difficult to pay service providers, likely leading to an acceleration of production declines," an economic analysis firm, Eurasia, wrote in a briefing note.

"In the event of a default, the government will incur additional costs as it looks to avoid asset seizures," it said.

Venezuela won a little breathing space thanks to ally Russia, which agreed to reschedule repayments on $3.15 billion it had loaned. But that is seen as far too little to make any real impact on the overall debt load