Summary

PDVSA, Venezuela’s state-owned petroleum company, faces two major debt repayments in the next week. The first one is for $984 million on Friday October 27, and then another for $1.2 billion on Thursday November 2.

Paying will be no easy feat for a Venezuelan government ravaged by economic crisis and political instability. The country’s foreign exchange reserves have already been heavily tapped for debt servicing, and at last count they were languishing in the sub-$10 billion range. Yet the price of not paying is significant enough that the Venezuelan government is doing everything within its power to scrape together the money and remain solvent.

This of course begs the question: Even if Caracas makes both of these payments, how long can it continue to delay the inevitable default?

Impact

The government will make next week’s payments. Earlier this month, the Venezuelan government missed a payment of some $586 million in debt stemming from public borrowing, PDVSA, and state-owned utility companies. The sum carries a 30-day grace period that allows for a late payment. Many have speculated that the government allowed this deadline to lapse in order to raise money for the October 27 payment, which does not have a grace period and could trigger credit default swaps and allow other lenders to accelerate their payment schedules, leading to a default. There are two major takeaways here: 1) the government wants to pay, and is continuing to do everything it can to stave off a default; and 2) for whatever reason, it is having a difficult time either putting the money together or getting organized enough to make the payment.