The Strategist

Fitch lowers PDVSA’s rating

11/08/2017 - 11:46

International rating agency Fitch Ratings has lowered the credit rating of Petroleos de Venezuela SA () to a level one step higher than that before the default, Bloomberg reports.

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This decision was made after the statement of the President of Venezuela, Nicolas Maduro, that the country intends to restructure its global debt, including the debt of the state oil company.

Fitch downgraded PDVSA’s rating from "CC" to "C", citing a statement by the Venezuelan government and a missed payment of the company's bonds with a redemption in 2027. The grace period for interest payments of $ 81 million that was due last month expires on Monday .

Fitch analysts said that default on the bonds is "very likely", and that PDVSA is unlikely to get help from the government, as it runs out of money. The reserves of the central bank were reduced to a minimum over 15 years and now amount to $ 9.7 billion, with most of the reserves stored in gold. The downgrade of the PDVSA rating brought it in line with the sovereign rating, which was also lowered last week.

The "C" rating assumes that a default or a default-like process has started," analysts said. Fitch expects that PDVSA investors will return 31-50% of their assets during the restructuring, "and the final figure will probably be closer to the lower end of the range."

According to Torino Capital, Venezuela's foreign debt amounts to $ 143 billion, debt on bonds is about $ 52 billion.

Last week, Nicolas Maduro in a television address stressed that Venezuela has always fulfilled its obligations and had the money to continue to do so, but this effort was prevented by financial sanctions imposed by the US this year for what was called the anti-democratic steps of its administration.

The financial sanctions imposed by US President Donald Trump in August made it virtually impossible to attract money from many international investors and led to the collapse of oil exports in Venezuela. Sanctions that prohibit US-controlled institutions from buying new bonds will also limit the current regime, making it impossible to communicate with US investors for debt restructuring.

One of the international partners of PDVSA is Russian company Rosneft. At the end of 2016, it provided a $ 1.5 billion-worth loan to the Venezuelan company on a pledge of 49.9% stake in Citgo Petroleum, the US unit of PDVSA. In early April of this year, the US Congress called for a review of the deal between Rosneft and PDVSA. In May, US Treasury Secretary Steven Mnuchin promised the Senate to study the issue of possible control over Rosneft over the American Citgo, which manages three oil refineries and pipelines in the United States.