Moody’s Investors Service cut its rating on Venezuela by two notches to the agency’s third lowest on Tuesday, citing a high risk of the country defaulting on its debt due to lower oil prices.
Moody’s cut the rating to Caa3 from Caa1 while raising its outlook to “stable” from “negative” on the view that even if the oil prices drop further, the losses to bondholders would be consistent with the current Caa3 rating.
“The dramatic oil price drop, which we expect will be sustained, will negatively affect the balance of payments and will more than outweigh the potential benefits of future foreign investment inflows,” Moody’s said.
Moody’s said bondholder losses, which are likely to exceed 50% on the sovereign’s external debt instruments, are also one of the key reasons for the downgrade.
The rating agency also forecast that Venezuela’s estimated current account surplus of more than 2% of…
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