Next victim of crude oil rout

January 13, 2015 09:16 AM

This article was written by Nathan Crooks of Bloomberg News, 

Venezuela’s credit rating was lowered by Moody’s Investors Service to nine levels below investment grade as a plunge in oil prices decimates the country’s finances.

Moody’s cut Venezuela’s rating two levels to Caa3, saying the government’s default risk has increased substantially after oil prices plunged more than 50% over the past six months. If Venezuela stops paying its debt, bondholders are likely to get less than 50¢ on the dollar in a restructuring, Moody’s said in a statement.

“The recent oil price shock has exerted pressure on Venezuela’s balance of payments and dwindling foreign reserves,” Moody’s said. “The dramatic oil price drop, which we expect will be sustained, will negatively affect the balance of payments.”

The price of Venezuela’s oil, which accounts for about 95 % of exports, fell last week to $42.44 a barrel from a peak of $100.64 on June 27. President Nicolas Maduro, who is on a tour of OPEC countries this week to shore up support for actions to raise prices, said that oil needs to return to about $100 a barrel.

Venezuela’s government is unlikely to implement meaningful policy measures to curb macroeconomic distortions and imbalances in the near term, Moody’s said.

Fitch ratings downgraded Venezuela’s rating on foreign- currency bonds to CCC last month, while Standard & Poor’s cut Venezuela to CCC+ in September.

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