Fitch Downgrades Venezuela's Ratings to 'CC'
Baku, August 31, AZERTAC
Fitch Ratings has taken the following rating actions on Venezuela's sovereign ratings: --Long-term foreign and local currency IDRs downgraded to 'CC' from 'CCC'; --Senior unsecured debt downgraded to 'CC' from 'CCC'; --Short-term foreign and local currency IDRs affirmed at 'C'; --Country ceiling downgraded to 'CC' from 'CCC', according to Reuters. KEY RATING DRIVERS Venezuela's downgrade reflect Fitch's view that a default is probable given the further reduction in financing options for the Government of Venezuela following the imposition of additional sanctions on Venezuela by the U.S. government on Aug. 25, 2017. The sanctions prohibit U.S. persons or entities based in the U.S. from a series of financial transactions with the government and PDVSA, including any dealings in new debt as well as dealings in certain existing bonds owned by the Venezuelan public sector and dividend payments to the government of Venezuela. Venezuela's external liquidity was weak before the sanctions 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 USD1.2 billion in the year through August to USD9.8 billion.
Venezuela's economy is expected to contract for a fourth consecutive year in 2017 with a 5.5% downturn after a deep contraction of an estimated 18.6% in 2016. Venezuela's economic recovery is likely to be further constrained by the prospect of continued tight FX financing/liquidity conditions aggravated by the sanctions, declines in oil production and political uncertainty.
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