'Failed State' Venezuela Now Bleeding Cash

Bad news for distressed asset investors. Venezuela’s cash position is deteriorating and that makes for a lack of clarity on the left wing government’s ability to pay its debts. This is particularly worrisome for PDVSA investors, a favorite holding among foreign investors playing — and praying — for Venezuelan regime change.

The recurrent headlines about debt re-profiling and delays on execution reaffirm that there is serious cash flow stress in Venezuela. Foreign exchange reserves held by the central bank are being depleted, with further depletion next year seen as the main risk to bond prices dated 2017, 2018 and 2019.

Petrodollar inflows cannot cover the massive amount of outflows due to a collapse in exports, a rise in imports, capital flight, and external debt payments. It will become increasingly difficult for the country to manage its dollar denominated bills without pulling from central bank and other assets. There is no obvious sources of financing now that China is standing down. If there were any other resources, officials would have already liquidated them in order to reduce the financing stress this year, says fixed income analyst Siobhan Morden, Nomura Securities’ number one Venezuela “death watcher”.

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