Venezuela Default Naysayers Undermined by S&P Downgrade
Standard & Poor’s is undoing the efforts of banks from Goldman Sachs Group Inc. to BNP Paribas SA to quell concern that Venezuela will default.
The South American nation’s $4 billion of notes due 2027 have plunged almost 8 cents on the dollar to a seven-month low of 65.3 cents in the two days since S&P cut Venezuela to CCC+, a grade the bond rater says reflects at least a 50 percent chance of non-payment in the next two years. This quarter, Venezuela’s bonds have been the worst-performing sovereign securities among developing nations, losing 11.7 percent through yesterday.
After Harvard University economist Ricardo Hausmann questioned Venezuela’s decision to pay bondholders in the face of shortages of everything from basic medicine to toilet paper, Goldman Sachs’s Mauro Roca said Sept. 9 the nation has the money to pay its debt and that defaulting would make matters worse. The downgrade adds concern Venezuela will struggle to meet debt payments as foreign reserves tumble, oil exports fall and the economy heads for its biggest contraction since 2009.
“Two years is a long time horizon for a country like Venezuela,” Jorge Mariscal, the chief investment officer for emerging markets at UBS Wealth Management LLC, which oversees $1 trillion, said in a telephone interview from New York. “If they don’t implement the reforms that need to happen, then 50 percent over the next two years may even be too low.”
http://www.bloomberg.com/news/2014-09-18/venezuela-default-naysayers-undermined-by-s-p-cut-andes-credit.html
