Venezuela Can Repay Debt Through Q1 2016: Barclays

By Teresa Rivas

On Tuesday, Caracas Capital reviewed the dire state of Venezuela’s finances, as reserves reached their lowest point in a dozen years—and the nation may have very little liquid funds.

Today, Barclays’ Alejandro Arreaza and Alejandro Grisanti also take a look at Venezuela, writing that the start of the high season of the nation’s debt payments, along with higher imports, are likely the main culprits putting pressure on its international reserves.

Seasonally, imports are higher in Q4, and in this quarter, the government has a particular incentive to increase them, given the proximity of the parliamentary elections. In order to make additional use of the international reserves, it would need to repo or sell gold reserves. We expect the financing gap for the rest of the year to be funded mainly with assets other than reserves.

Overall, Venezuela and or Petróleos de Venezuela (PDVSA) must repay $5.1 billion in maturing debt and interest in October and November. PDVSA is on the hook for the lion’s share of that, as it is scheduled to pay $4.5 billion. Arreaza and Grisanti note that the oil firm historically hasn’t used international reserves to make payments, so it may have been the sovereign repayments that were the main drain.

Looking ahead, they see the country as able to pay its bill at least through the start of next year:

Our quarterly cash flow model suggests that Venezuela will have a deficit of approximately USD10bn just during this quarter and will have to finance almost all of it with its own assets. Currently, liquid international reserves are likely less than USD0.5bn. The rest of the reserves are gold, SDRs and the position at the IMF. Therefore, assets besides reserves will need to be used. We estimate that disposable assets (in and out of reserves) are about USD15.1bn. Assuming a gold repo of USD3.0bn before year-end, the disposable assets could end the year at about USD8.0bn. With these assets and a possible additional use of gold reserves, we expect Venezuela to meet its debt obligations at least until Q1 16.