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Moody’s cuts Venezuela rating as default risk rises

People line up to pay inside a Makro supermarket in Caracas, Venezuela, Jan. 9, 2015.
Jorge Silva | Reuters
People line up to pay inside a Makro supermarket in Caracas, Venezuela, Jan. 9, 2015.

Moody's Investors Service cut its rating on Venezuela to Caa3 from Caa1, saying there was high risk of the country defaulting on its debt due to lower oil prices.

The rating agency raised the outlook to "stable'' from "negative'', with the view that even if the oil prices drop further, the losses to bondholders would be consistent with the current Caa3 rating.

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"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.

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Moody's said bondholder losses, which are likely to exceed 50 percent on the sovereign's external debt instruments, are also one of the key reasons for the downgrade.