Venezuela

Venezuela’s foreign reserves have dropped below $10bn for the first time in 15 years as chronic mismanagement, corruption and subdued oil prices continue to batter what used to be the wealthiest country in South America, the Financial Times reported. The reserves stood at $9.983bn, according to figures published on Friday from the central bank, representing a 77 per cent decrease since January 2009 when they hit a peak of $43bn. The fall comes at a time of heightened political tension.

The world’s riskiest credit got another jolt after S&P Global Ratings lowered Venezuela’s rating deeper into junk as the economy spirals down amid heightened political tension, Bloomberg News reported. S&P reduced the nation’s long-term foreign and local currency ratings to CCC-, or three notches below investment grade, from CCC on Tuesday. The New York-based company kept its negative outlook for Venezuela, signaling room for further downgrades. Fitch Ratings and Moody’s Investors Service also rank the country at speculative levels.

Venezuela’s state oil company, one of the most distressed credits in emerging markets, hired BancTrust & Co. to help arrange calls with investors, according to a person with direct knowledge of the matter, Bloomberg News reported. The calls with Petroleos de Venezuela SA officials including Chief Financial Officer Simon Zerpa, set to begin July 10, are meant to improve communication with bond investors and will be invitation-only to some of the company’s biggest creditors and emerging-market funds, said the person.

Bets on a Venezuelan default are climbing as international reserves slump toward $10 billion amid anti-government protests and President Nicolas Maduro’s push to rewrite the constitution. The implied probability of the country missing a payment over the next 12 months rose to 56 percent in June, according to credit-default swaps data compiled by Bloomberg. That’s the highest level since December, Bloomberg News reported. The odds of a credit event over the next five years increased to 91 percent last month.

Tuesday in Venezuela, armed groups attacked Congress and a police helicopter may or may not have dropped grenades onto the Supreme Court. Wednesday’s reaction from traders? Mostly a shrug. Venezuela’s benchmark bonds due in 2027 edged higher, while notes from the state oil company coming due this year were a hair lower, Bloomberg News reported. The cost to insure sovereign debt from default dropped the most in a month.

In the wake of Goldman Sachs’s controversial purchase of $2.8 billion of bonds held in Venezuela’s vaults, investors have been trying to quickly figure out what other hidden assets the country might be sitting on. The stakes are high. As the central bank’s officially published foreign-reserve figure dwindles to just over $10 billion, that secretive stockpile might ultimately decide whether the nation averts default or not, Bloomberg News reported. Calculating the value of those securities, as you might expect, is tricky.

Reports of a failure to pay a debt to Russia and a requested ruling on whether such a failure constitutes a “credit event” that could trigger insurance contracts on billions of dollars of international bonds have brought Venezuela closer than ever to the brink of financial collapse.

Venezuela has been in talks with Russia about its $1 billion debt restructuring, TASS news agency quoted Venezuela's envoy to Moscow as saying on Wednesday, Reuters reported. Russia has slashed projected revenue by nearly $1 billion to reflect expectations that Venezuela may not make timely payments on bilateral loans, according to a document released by Russia's Audit Chamber on Tuesday. Read more.

Venezuela’s opposition is turning up the heat on Wall Street banks by alleging that some of the proceeds from a recent bond sale will be used to purchase weapons and help keep President Nicolas Maduro in power, Bloomberg News reported. In a letter dated June 1, Julio Borges, the president of the opposition-controlled National Assembly, said that at least $300 million in proceeds from the central bank’s “fire sale” of bonds to Goldman Sachs Group Inc. and Nomura Holdings Inc. will be used to purchase weapons from Russia.

Investors’ hunger for yield can appear callous when people are genuinely starving. One of the more anomalous trades in emerging market debt originates in Venezuela, the South American nation in the midst of a brutal economic meltdown that has resulted in a malnutrition outbreak. Against the odds, the country has been intent on servicing its financial obligations — dubbed “Hunger Bonds” by Ricardo Hausmann, a former Venezuelan official, the Financial Times reported.