Three international drugmakers, that suffered $500 million in foreign exchange loss in 2015 in Venezuela, received from its government discounted bonds as payments. The OPEC nation's inability to pay in dollars has caused industry experts concern that the current downturn may even plunge into a deeper hole that may be difficult to recover from.
Reuters reports that, Venezuela settled its debts with global pharmaceutical giants, Novartis AG NOVN.VX, Bayer AG (BAYGn.DE) and Sanofi SA (SASY.PA), through bonds that are in dollar denominations paid through the PDVSA, the national oil company. However, sales of these bonds, which currently trade 31 centavos to a dollar, only brought in a third of their value. Novartis reported that its sales left it with only $73 milliion while suffering a $127 million loss. Neither Bayor nor Sanofi issued similar statements. Industry insiders, though, estimated that the chances for them incurring the same loss are high.
Venezuela's lack of dollar reserves can be attributed to its own losses when oil prices started crashing the past two years.
In a related report, CNBC says that the country's total debt for the year amounts to $10 billion. It meets its obligations to its creditors by drawing on the last of its reserves in dollars and gold. Though the strategy can strike one as a sign of desperation, these payments, along with the depressed bonds released to the pharmaceutical giants, show a commitment of the Venezuelan government to fulfill its financial obligations. However, the continuing decrease in oil prices puts in doubt the country's actual ability to pay, noble intentions notwithstanding. Critics also point out that such moves have trapped its citizens in an economic depression that sees no signs of lifting.
Greylock Capital co-chief investment officer, Diego Ferro, cautions, "The willingness to pay that, they have shown, is just surreal, suicidal, crazy."
Albert Goldson, Seeking Alpha's columnist, cites the tremendous challenges facing the struggling oil country: a projected economic contraction of 8 percent in 2016, following 10 percent in 2015; a 700 percent inflation rate, currently the highest in the world; a heavy foregn debt of $110 billion; and an estimated 40% decrease in export revenue this year.
Goldson warns that unless significant economic reforms are introduced, Venezuela may face an "imminent financial collapse."
