One week before Venezuela faces a critical debt payment, the distressed country is already late on a series of smaller bills. The nation's state-owned oil giant, Petroleos de Venezuela, SA, has two major bond payments totaling about US$2 billion coming due in the next two weeks.
While the market expects the company, PDVSA, to avoid default, the missed payments have rattled investors and raised fresh questions about how long embattled President Nicolas Maduro's regime might last.
Last week, Venezuela missed five coupon payments totaling nearly US$350 million tied to the debt of PDVSA, the government and the utility Electricidad de Caracas. That stoked a minor sell-off in a number of outstanding bonds.
As for the upcoming payments, the first is due next Friday. The price of that bond dipped from a one-year high of US$86.80 last week to US$83.48 on Monday. It has rallied from a 12-month low of US$62.50 on August first.
PDVSA needs to pay US$841 million in principal, plus interest, on that bond. It's a critical moment for Venezuela because a default is seen as hastening Maduro's demise. Making matters worse, the collateral against the bond is Citgo, PDVSA's Houston-based refining and retail subsidiary.
The following week, on Nov. 2, a nearly US$1.2 billion PDVSA bond is maturing. Total outstanding obligations for 2017 are about US$3.4 billion, and there's no grace period for the two biggest payments.
As Venezuela's economic and political crisis worsens, foreign reserves have dwindled to just US$9.9 billion. But analysts and money managers say more than half of that could be in gold and illiquid assets.
The market currently puts the odds of a Venezuelan default at 15%, according to an analysis by RVX Asset Management, but other analysts believe the chances are closer to 40%.
Edward Glossop, an emerging markets economist at Capital Economics said that a likely explanation is that U.S. sanctions have created technical problems forcing Venezuela to make alternative arrangements to pay its debt, delaying payments. Capital Economics projects that Venezuela is unlikely to default until 2019, though Glossop says it faces another round of hefty payments in 2018.