By Richard Francis
& Erich Arispe
NEW YORK -- Fitch Ratings has downgraded Venezuela's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'C' from 'CC'. KEY RATING DRIVERS
The downgrade of Venezuela's Long-Term Foreign Currency IDR to 'C' reflects the announcement by the authorities on November 3 that they intend to pursue a renegotiation of its sovereign external debt obligations. Coupled with the previously missed payments on outstanding sovereign bonds that are currently within their 30-day grace periods, in Fitch's view this makes a default event highly probable.
Venezuela's external liquidity was weak before the announcement with a liquidity ratio estimated at just 33% (the stock of central bank international reserves plus the banking system's liquid foreign assets relative to external debt with a residual maturity of less than one year).
Gross international reserves have declined further in 2017, falling by nearly USD1 billion in the year through November to USD10.1 billion. Venezuela has additional foreign exchange (FX) liquidity in government-managed funds, but these have likely declined and remain opaque in their administration and execution.
The sovereign faces external coupon payments of USD619.6 million in the last two months of 2017 and USD3,348 million in 2018, as well as external bond principal maturities of USD2,052 million in 2018. RATING SENSITIVITIES
The main risk factors that, individually or collectively, could trigger a rating action are:Negative:
--A payment default or debt restructuring exercise by the sovereign.Positive:
--Public announcement of the intention to continue servicing sovereign debt obligations and the timely debt service in line with the original maturity schedule for upcoming debt obligations.KEY ASSUMPTIONS
--Fitch expects Brent oil prices to average USD52.5/b in 2017, USD55/b in 2018 and USD60/b in 2019.
Fitch has taken the following actions:
--Long-Term Foreign-Currency IDR downgraded to 'C' from 'CC';
--Long-Term Local-Currency IDR affirmed at 'CC';
--Short-Term Foreign-Currency IDR affirmed at 'C';
--Short-Term Local-Currency IDR affirmed at 'C';
--Country Ceiling affirmed at 'CC';
--Issue ratings on long-term senior unsecured foreign-currency bonds downgraded to 'C' from 'CC'.