Voting Much Stronger In The East Of Caracas Than In The West

December 6, 2015

I went to do my usual spin around Caracas to see how things were going along. I went from one and to another hitting too deep into Catia (More on that later!) as well as Petare. My overall general conclusion is that the lines were shorter and lighter in the West areas (Catia, La Pastora, Quinta Crespo), than in the East from Chacao to Petare, where I saw bigger lines.

In the west the presence of Chavismo was felt more, including the omnipresent image of Chávez everywhere, as well as kiosks too close to polling stations. Here is how present Chávez was:

chavez

How prescient of him to know exactly what the ballot would look like in 2016…

In the West, polling centers were less detectable than in the East of Caracas, streets were seldom blocked, which seems to be the rule in the East of the city and lines in the west of Caracas were fairly short, if present. This would suggest to me at first sight to imply that desilusioned Chavistas are not going out to vote. They may not want to vote for the Government, but are not willing (or capable) of casting their ballot for the opposition.

In Catia, a Chavista stronghold, the Davil saw very few lines. In fact, it was only when I got closer to downtown (further East), like in this picture in Lice Andres Bello, when lines appeared:

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That was the biggest line I saw in the West by far. The second one was this one, near the Panteon Nacional:

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We really saw no more than those two lines in a fairly wide and long spin around the West.

In the East, lines were common, as were traffic jams caused by stupid closings of streets, sometimes in very inefficient ways.

This was in Avenida Romulo Gallegos, it was a long line, but hard to get a good capture of the whole thing:

IMG_8245

This was quite typical of the visible and less visible centers in the East of Caracas.

The day was not without incident. I went a bit too deep into Catia for my comfort and at some point decided to make a U-turn and turn back. Unfortunately, there were some cops right at the end of the U-turn, which proceeded to stop me. They made me get out of the car, open the trunk, show all the papers etc. They then proceeded to bounce me from cop to cop telling me what I did was illegal, bla, bla, bla. All the time I kept saying, yes I know it was illegal, sorry, I was lost and did not feel safe. They talked about tickets, amounts, I could not drive etc, etc., while I said I knew. After three cops, they brought the lady cop who informed me that the penalty was all of Bs. 1,500, three months of suspended driving etc. I said, what can I say, I wanted to be safe.

It seemed that they were expecting me to offer a “solution” to the problem. Since I did not, she gave all the papers back to the first guy (the nicest one too) who told me since I had accepted my responsibility from the go he was going to let me go without writing up a fine.

Perhaps the salient feature of the whole thing is how they attempted to use a lot of big words when talking to me, but always relaxing back to slang in the end. While they had me there another car was stopped, but they withdrew guns, but I was getting into the car by then and set into the sun, like good devils do.


Venezuelan 2016 Parliamentary Elections Are Here!

December 6, 2015

I will be updating during the day! Read from bottom to top!

8:10 AM It is 8:10 AM and the CNE is reporting something like 90.3% of all polling tables open, below historical numbers at this time. Those that have yet to be installed is because 8 AM is the cut off time to wait for the principal members to show up before alternates take over.

Manipulation is at high levels, I just saw Chávez voting on the Government’s TV station. Just a video clip from the past, but still quite surprising!


Venezuela On Edge On The Eve Of The December 6th. Parliamentary Vote

December 5, 2015

venny

A not so unbiased polling station with electronic votng machine and voting material in front of Chavez’ figure

Arrived only a few hours ago on Saturday and all I can say is that people are on the edge tonight wondering what will happen tomorrow. The cockiness of three weeks ago is not as blatant. Yes, the opposition will get a majority, but after 16 years of Chavismo people (and rumors) are rampant about possible tricks and maneuvers by the government.

This was not helped by the fact that there were Internet blackouts in many parts of the country today. The Head of Conatel, the telecom regulator denied this, but friends tell me that if you tried to call CANTV to report the problems, they were not even answering the phone.

The result is an atmosphere of mistrust and skepticism about what may or may not happen tomorrow. Or the day after, for that matter…

On the positive news front, the Electoral Board announced that witnesses for the opposition outnumbered those of Chavismo’s PSUV by 2,000, a clear indication of the inability of Chavismo to mobilize people like it used to. Many friends also reporting that numerous polling stations have seen no presence of pro-Government members, leading to the installation of the process without them.

Meanwhile, as the international media is harassed as they arrive in Venezuela and also as they try to cover the elections, Chavismo is selling it as a campaign against the country, even citing the number of negative (380), neutral (75) and positive (24) news items about the country. Which according to Chavismo, reflects this campaign and not reality.

Never mind that many reporters have had heir equipment confiscated at the airport and many have been told they can not take pictures of mundane events and their media has been erased.

Meanwhile visiting former Presidents managed to obtain a promise from the Government that political prisoners would be allowed to vote (They were not going to), while the opposition has created a parallel system of observation of the electoral process by foreign dignitaries, as well as social media tools to denounce problems tomorrow with the voting process.

Meanwhile, some pollsters claim to have seen a Maduro resurgence (!!!!), while others say that the result will depend on what Chavismo and now lukewarm Chavistas do. If the latter decide to stay home, the opposition will squeak by, but if they decide to go and express their unhappiness the opposition could enjoy a huge victory, even if short of the super majority.

I am sticking to my guns of a simple majority, roughly 55-58% of Deputies, hoping that former Chavistas are so disenchanted that they prove me wrong. I like the fact that Chavistas are outnumbered by the opposition witnesses and that they have been absent from the installations of the polling stations. But I just wonder if they will they be absent from voting too…

Abstention will be key and pollsters have little confidence that they have a handle on their number. Add proportionality, gerrymandering, fraud and tricks and numerical predictions are really hard to make.

I will do my usual scan throughout Caracas and report solid news, if such an animal exists before midnight tomorrow.

Best of luck to Venezuela from the Devil!


The Devil Looks At the Upcoming Elections In Venezuela

November 29, 2015

devilish

I have tried not to say much about the upcoming Parliamentary elections. I have also tried not to get caught up in the current excitement of Venezuelans. In just a few weeks we have gone form subdued optimism, to almost a frenzy, that suggests that we may reach the 2/3 super-majority needed to make a difference.

I view this election as simply one more step in the process of undermining Chavismo, a process that could (and should!) take some time. Yes, I do expect the total vote, the overall percentage of pro-Mud votes vs. Chavismo vote to be around 70% versus 30% in favor of the opposition, but I can´t ignore the fact that Chavismo will massively have assisted voting, lots more money than the opposition, will mobilize voters, will blackmail public employees and recipients of the Government’s largesse and stuff a few hundred ballot boxes at the end of the day.

Which makes me skeptical that 70% of the total vote vote can be turned into 66% of all elected Deputies.

But I the same time I do believe that a victory in the national vote by the large margin expected, will set off an earthquake within Chavismo. Maduro and his Primera Combatiente will be blamed for the debacle and a fight will ensue that will lead to the demise of Chavismo as we know it.

But I also believe that confrontation, violence and uncertainty will be the rule of the day as Chavismo gets used to having to share Government with the opposition. And I pray that the opposition maintains some form of cohesion, before it begins having its own internal divisions.

In the end, Venezuela will be choosing between two forms of populism. One better than the other one, but in the end two forms of the same thing. We are trapped in the last 16 years of Chavista domination. The lesser of two evils.

But I digress…

The most likely outcome of the election is that the opposition gets between 84 and 100 Deputies, a simple majority, but short of the three fifths needed to cause serious damage.

But even at a simple majority, the opposition could become a pain in the behind of Chavismo: It can change the attributes of municipalities versus states, it can initiate investigations, approve budgets and new appropriations and change the rules of order that determine how debate functions within the Assembly.

Sufficient to drive Chavismo crazy, as they are simply not used to even discussing issues among themselves. They simply follow orders now.

Of course, the cherry on the opposition’s cake will be the fact that it will be decide who the President of the National Assembly is and you can be sure it will not be Godgiven.

I hope is not an old dinosaur either.

But in the end, this is just the annoying level. Like a bee permanently buzzing around Chavismo and reminding them that they lost. And they will not absorb this gracefully. If they actually decide to even absorb it, which is definitely a possibility. The best scenario in my mind: Kicking the democratic can…

The next level becomes somewhat interesting. At 100 Deputies, or three fifths, the Assembly can revoke something it did before, censor Ministers, remove members of the CNE and/or the Supreme Court.

That’s what would be called getting annoying, really pissing off Chavismo.

I think this is reachable, but call me suspicious that we will actually get there. The CNE may not cheat everywhere, but I am sure that it has identified the districts where a few levers, a few votes and the three-fifths are just a memory, even if we did get it.

Finally, there is Nirvana, a level that I don’t think we will reach: 110 opposition Deputies. Here, we can really raise havoc on the revolution, removing  Supreme Court Justices, Prosecutor, People´s Ombudsman, revoke Deputies and even call for a Constitutional Assembly.

Just imagine the level of confrontation involved.

I know many people interpret polls like we will get to this level, but I am skeptical. People may be mad enough to surprise me (Please do!) But I don’t think they will. The media is still controlled by Chavismo and the fake stories of Chavismo still sell, no matter how absurd they may be.

Thus, much like the nephew’s trial, the elections are just another step. Maduro will have to pay for the loss and any undermining of his rule is a positive. In the end, we want the process to last, so that Chavismo can be wholly responsible for the destruction of the country and any chance of it reviving becomes remote. Yes, this involves a lot of pain, but nothing like not burying Chavismo for its sins.

In some sense, better a small death than a sweeping victory. In the absence of a strong opposition that can articulate a plan, this may be the best of scenarios anyway.


Violence And Death On The Campaign Trail In Venezuela

November 27, 2015

vio10

No sooner had the campaign for Venezuela’s Parliamentary elections began that acts of violence began. There have been at least seven acts of violence during campaign events. Curiously, all of them have been against the opposition. These are not simple threats or side shows. As shown above, one of these incidents involved hooded activists, most wearing the emblematic Chavista red shirts, some of them holding machine guns.

Then, two nights ago, as an opposition rally was winding down, the Secretary General of Accion Democratica in Guarico State, Luis Manul Diaz, was shot death. This was no ordinary rally, the wife of jailed opposition leader Leopoldo Lopez, Lilian Tintori, was present and close to the shots, there were over three thousand people in attendance and the bullets sprayed walls and luckily did not hit anyone else.

When the violence follows Maduro’s statements that Chavismo will win the elections “Como sea” (In any way…”), it is difficult to dismiss the meaning of these acts of violence. But when there are deaths involved, it becomes particularly dangerous to dismiss the violence or not remind the Government that it is in charge of law and order.

Particularly at fault have been the representatives from UNASUR, the only ones allowed to “observe” the upcoming elections, who have reacted with platitudes directed to the electorate and both sides, rather than remind the Government of its responsibilities to maintain order and prevent violence.

The reaction by the Government has been as cynical as can be. From Godgiven’s “these were all a set up by the opposition”, to suggesting that the dead political leader was a murderer and this was nothing more than a fight between unions. As if human life was only the right of a selected few and the same presumption of innocence, the same one that the Government wants applied to the two “Venezuelans” detained in a drug sting in Haiti, does not appear to apply to these people.

The important question is whether the Government is looking to postpone the election or simply to create fear in the elctorate as well as in the politicians looking for votes. I have never been in the camp of those that believe that the Government will cancel the elections, so I have to go for the second argument. The strategy for Chavismo is a multiple one: From state of emergency in border states, to Min Unidad distracting vote, to violence and intimidation. Once the votes are in, and if they are unfavorable, then the “Como sea” strategy will need to be implemented. But not before.


An Explosive Bag Of Doritos In Venezuela

November 21, 2015

doritos

Venezuelans are tense. Fed up with Chavismo after 16 years. Fed up of abuses and authority. People are less passive. They are willing to stand up more for their rights even in the face of excessive authority. They look forward to the upcoming election to express their unhappiness. But even criminals are now confronted in barrios, since the police will not act.

Except that when people take justice in their own hands, many unexpected things can happen. This is the story of one of them. This was published in Reddit and I reproduce it here with permission from the author, who goes by the handle #xaitox. I have polished his English a little bit, to make it easy to read.

The story is tragic and at the same time, comic. But tragic in the end. This is what 16 years of this Government have led the people of Venezuela to.

In #xaitox’s own words:

“This happened about 3 hours ago…

I am a 29 years old male, living in probably the most corrupted country in the world (Venezuela). So just to give you some background, Venezuela is in a very difficult situation, political and economical, the majority of us want to get rid of this corrupted government and we have elections in a few days. So , the tension is palpable in the streets, police and military are corrupted as fuck (you can buy weapons such as grenades or sub machine guns from them, etc etc) basically hate is in the air.

So, I was in a traffic jam, one of the many we have daily when hunger hit me, I had a big bag of Doritos in my car, so I decided to eat some, I have a gastric bypass and can’t eat that much anyway, I was eating with my window open when a motorcycle with 2 military officers (low rank) stood beside me, waiting for their turn to pass. I see the guy in the back literally drooling looking at the Doritos so “Why not? I won’t eat this much”. I offer him the bag and he didn’t hesitate to take it with a very big smile and thanking me….

20 seconds later the shit storm!!! The driver next to me gets out of his car screaming “you fu*king thieves! Let the guy alone he has done nothing to you” (he thought I was being black mailed and I got asked for money inside the bag which is one of many ways for them to get paid black mailing you), I get out of the car to explain that it wasn’t money, but hell no, the military officer that was driving told me in not such a pleasant way to stay inside the car, that he could handle it….

He gets off the bike and goes to the guy that was screaming, baton in hand, when all of a sudden no less than 20 people are surrounding him screaming “Thief!!!! Oppressor!!! Go to hell” and start punching him. Military guy #2 gets down to help his friend and getting punched and screamed. He managed to get military guy #1 back the bike and proceeded to drive as fast as he could… Everyone got in their cars and guy #1 hands me back me the  bag of Doritos  “Here’s your money”…

Now I have my Doritos back in my car and there is sadness in my heart for how deep this society has fallen…

But I do have half a bag of Doritos to eat in the traffic jam tomorrow and I have that going for me, which is nice.

2 military officers got their asses kicked for a bag of Doritos I gave them.”

Tragic no? An act of kindness turned into a tragic event, tragic for the military policemen and a tragic statement about where Venezuela stands today as a society…

Update: A friend sends me this video which he taped at a Mall in Caracas. The people in the Mall kicked the National Guardsmen out of the Mall, as they were trying to extort merchants. They follow them calling them : “Hijos de Puta”

And another: Centro Comercial Gran Bazar in Maracaibo:


Hyperinflated Arepa Index (HAI) X: One year, 441% rise

November 17, 2015

arepita

Today is November 17th. It was exactly one year ago that I went to my favorite arepera and surprised at the sudden rise of my also favorite arepa con queso de mano, pictured above, that I decided to start keeping records of the price in each of my visits.

Today, there are no graphs. They are not needed. One year ago, the arepa was Bs. 120. Today it was Bs. 650. That is a rise of 441.7% in twelve months (sorry, I had subtracted twice the 100%, one in the spreadsheet and one in my mind*). Absolutely depressing…

There is little that I can say positive about this. At least, scarcity did not hit my arepa directly and I was able to eat it each time I went. Tonight’s was particularly delicious, the guy heard me when I asked for the “mas tostadita” (the darkest one) one and, as you can see, the filling was quite generous too. Depressingly enough, the tip I gave him was almost the price of the arepa one year ago. At least he deserved it for his service…

*How did I do that? Easy, I did not look at the spreadsheet cell which already subtracted the 100% and thought it was the ratio, rather than the actual calculation, thus I subtracted it twice, one in the cell, the other mentally.

 


800 Kilograms Of Arrogance Arrested In Haiti

November 11, 2015

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When I first read the ABC piece on the detention of the nephews of Venezuela’s First Lady in Haiti for attempting to bring 800 kilograms of cocaine into the US, it sounded too far-fetched to be real. It sounded right out of a movie plot: They were caught in a sting operation, trying to move 800 Kilograms of cocaine into the US, the whole thing was filmed and they argued they had diplomatic immunity.

Far fetched, because what saved General Carvajal, was that he actually had a diplomatic position in Aruba. You see, it is one thing to have a Diplomatic Passport, another to have Diplomatic immunity. Any Joe Bimba can get a diplomatic passport which lasts four years in Venezuela, but, for example, if you are removed from your position, or if your trip was not an official trip, that immunity is simply worthless.

Long time ago, I flew to NY and a friend from primary school was on the plane. His father happened to be Venezuela’s Foreign Minister at the time. He had a Diplomatic passport and readily passed us to go to the Diplomatic line which, in contrast to ours, was empty. A few minutes later, he came back to the back to our line and stood in it like a regular citizen. When we were waiting for the luggage I asked him what happened and he told me that the immigration agent had asked him if he was on an official trip to the US. He said no. Then he was asked why he had a Diplomatic passport. He explained. To which the agent asked if his father was in the plane. As the answer was no, then he was sent to the regular line, as his passport may have been diplomatic, but not even the privilege of using the diplomatic line was available to him.

But such is the arrogance of Venezuela’s revolutionaries that they don’t even learn from their experiences. They have moved around funds, drugs and who knows what else, using private or public planes, through well known banks and countries, thinking they were flying under the radar, until they were not…

Meanwhile, the silence of the Venezuelan authorities is as loud as that of most local newspapers, which took a while to republish the news. Amazingly enough, it was revolutionary aporrea which followed Tal Cual with the news, while we are still waiting for El Universal to say anything. But news sources from the WSJ, The New York Times, Reuters and CNN, have all confirmed the story carried first by Spain’ ABC.

Meanwhile, we should know the details tomorrow as the First Lady’s nephews, one of which was raised by her directly, are arraigned in New York. Among the details to watch for, is whether there are videos or not, who owned the plane, a Citation 500 (Sabenpe?) and what the Government says or not. Interestingly, in the absence of news, the Government has so far preferred to stay quiet.

Much like the upcoming elections, I don’t view this as something that will change history, but more as part of the continued erosion of Maduro’s hold on power. Each bit of arrogance, indecision and defeat, adds to the internal divisions that will eventually lead to his demise.

This 800 Kilograms of arrogance by Cilia’s nephews, will simply add to the tally.

 

Here is the Indictment

 


A Remarkable Letter By The OAS Secretary General to The Head Of Venezuela’s Electoral Board

November 11, 2015
View this document on Scribd

Today, the Secretary General of the Organization of American States, Luis Almagro, wrote the extraordinary letter above to Tibisay Lucena the Head of Venezuela’s Electoral Board.

Extraordinary, because for the longest time, Venezuelans have become accustomed to the cowardly and cynical and mercantile attitude of most Latin American leaders when it comes to the respect of human rights of Venezuelans and the way elections have been run in the country. Even when they criticize, they tend to do it meekly and indirectly, seldom addressing the issues directly.

Secretary General Almagro does an extraordinary job of doing it, without mincing any words and addressing the problems head on.

I personally would like to thank Mr. Almagro for doing his job and without avoiding the thorny issues that his predecessors and those in leadership positions in so many other countries and institutions in Latin America have done so for the last sixteen years.

While there is promise of an English version, I wanted to summarize in English the gist of Mr. Almagro’s letter, without translating it verbatim:

Mrs. Tibisay Lucena:

I have received your kind letter in which you reject our offer that we (the OAS) execute an an electoral observation process during the Parliamentary elections on December 6th. 2015.

I regret that this rejection is based on political positioning and not on the arguments that make Justice and guarantees necessary for an electoral process.

I do not object that you show your political position, but I suppose that you have it clear that the job of the electoral justice transcends completely that type of positions and that it requires to place yourself at the forefront of the guarantees demanded by the parties, whether they are Government or opposition.

In your letter, you reiterate that Venezuela’s electoral system is efficient, but I understand that electoral guarantees do not only refer to efficiency.

I would have hoped that in your letter you would have place at the forefront the guarantees demanded and that from it it would have arisen that all of the needs of Venezuelan political parties are covered to insure that the elections that will be held will take place in a just and transparent manner.

If the Secretary General of the OAS were indifferent to the requests of the opposition of the countries about the electoral observation we would be gravely failing our job, which is to support the proper functioning of the electoral process for all parties involved.

We would be failing our job gravely if we did not take into account the conditions under which the Venezuelan electoral campaign is developing with respect to the future legislative elections. It is worrisome that from the analysis of those conditions we have to conclude that as of today, the difficulties only reach opposition parties.

In this scenario we all are involved either by action or by omission, but that fact makes the essence of you job.

You are in charge of electoral Justice, you are the guarantor. Everyone should trust you, all parties, all citizens and all of the international community because Venezuela has obligations with democracy which transcend its own jurisdiction. An election needs that all of the actors involved, citizens, political parties, press and civil society have been assured the full enjoyment of their civil and political rights.

You have seen us insist to perform the electoral observation because it is or job to safeguard for electoral Justice in the region, because electoral Justice is a prerequisite for the correct functioning of a democracy and for the guarantee of the most ample respect of the civil and political rights of each and everyone of the citizens.

The opposition in your country has repeatedly requested that we we perform it and, as I have said before, you also owe them the guarantees, because your Government has many ways to insure that the results be just. And it is not a request that is out of tune, it is your obligation, legal, as well as moral. It is the obligation of the CNE, but it is also the obligation of the OAS.

If I looked the other way in the face of the complaint of the opposition oin your country and the international community, I would be failing my most essential responsibilities. If you do not have the mechanisms that insure that the observation has the most ample guarantees for their work, you are failing your obligations that make the essence of the guarantees that you should bestow.

Your job is to watch over just and transparent elections that develop with the maximum guarantees. That implies watching over those guarantees months before the elections. It is required  and to do what is required is a matter of electoral Justice.

To look out for justice and transparency in the elections is our obligation and it is not interference. Interference would be if I disregarded the just and well founded complaints, if I looked the other way given this situation. In such a case I would be doing it by omission, because my inaction would allow for measures that affect the candidates and that in such a way, affect the possibilities that all citizens be allowed to elect freely and fully.

This is why I ask in what follows the foundations of my insistent offerings for electoral observation, based in the need to demand conditions and guarantees for electoral Justice. They represent the conditions for the Venezuelan political process that make me reaffirm that an international observation would provide all Venezuelans with peace of spirit when the time comes to count the votes.

General conditions of the process and the campaign, a level playing field

Then he cites the problems in details in over a dozen pages, I will just cite the main subjects:

-Use of Financial resources (by the Government)

-Access to the media

-Confusion in ballots

-Security Plan, Operacion de liberación del Pueblo (OLP)

-Changes in the rules of the game.

-The ban of certain opposition candidates

-Intervention of Parties by the Judicial system.

-State of Emergency in some States and its impact on the elections.

-Freedom of the Press and of Expression.

-The sentencing of Leopoldo Lopez.

Sincerely Luis Almagro

 

 

 

 


Making A PDVSA Bond Exchange Attractive

November 8, 2015

People have gotten all worked up about some statements made by Pdvsa’s President (who has other cambures now) that the company may “talk to bondholders to modify the maturities in the next two years in order to make them more manageable”.

What he is talking about is about a voluntary exchange by bondholders, something bondholders always are willing to listen to: Pdvsa would offer people to switch the US$ 1 billion in PDVSA 2016 and the US$ 4.1 billion of the PDVSA 2017 N, which matures in two parts, half in 2016 (US$ 2.05 billion) and US$ 2.05 billion in 2017.

While some form of exchange proposed to bondholders is definitely workable, the key here is the word voluntary: You have to offer bondholders something attractive in order to make the switch. From Pdvsa’s point of view, you want to maximize the number of bondholders that accept the exchange.

As I said above, people have gotten very excited about this possibility, because in the end, Pdvsa’s problem is one of liquidity and moving the Pdvsa 2016 and 2017N maturities two years down the road, would certainly boost the company’s bonds prices.

Except it would be very expensive. Like very, very expensive…

The plot below shows the price of the PDVSA’s 2016, 2017N and 2021 bonds (blue diamonds), together with its yield  to maturity (red squares):

pdvsaexchange

The yield to maturity of the PDVSA2016 is 30%, it goes up to 50% for the 2017 with the low coupon and then drops again to 30% for the PDVSA 2021. I have also plotted the blue triangles which are the bond prices and, since there are no bonds maturing in 2018, 2019 and 2020, I have drawn free hand (using the Venezuela curve as a guide) a yield curve through the three points to try to capture the yield that would have to be offered in 2018, 2019 and 2020 in a proposed exchange. This is shown as large blue circles.

Now, let’s assume (there are many ways of doing this), that the idea is to move the 2016 to 2018 and the 2017N into two bonds, one in 2019 and the other in 2020, since there are no PDVSA bonds maturing in that period.

Let’s just consider the first case: Let’s offer something for the PDVSA 2016 to be exchanged one-to-one for a PDVSA 2018. As you can see from the graph, the PDVSA 2016 today is worth 79%. So, if you are holding 100k of that that bond you can sell it tomorrow in the market for 79k. So, anything the Government offers you, has to be worth 79k.

So, if we assume the 2018 bond has the same coupon of about 5% (I did not do exact calculations), from the graph yo can see that a 2018 bond with a 5% coupon, would have to yield 58% to maturity. In order for that to happen, the bond would be worth 27.5% of its face value.

This means that for it to have the same cash value today as the 2016, you would have to offer me 79k/27.5k= 2.87 times the face value!

This means that for a US$ 1 billion bond, you would have to offer US$ 2.8 billion in new bonds!!!

Sort of expensive, no?

But wait!!! Why would I take it? Where is my incentive? You are offering to give me a bond which is three years longer, that is worth the same as mine is worth today, same coupon. I am not interested, I will just wait until the PDVSA 2016 matures.

So, unless PDVSA offers MORE, this is not attractive. So, PDVSA would have to offer either more coupon or more capital, which would make it even more expensive.

See why this is not a piece of cake? Yu have to offer more capital or more coupon. Or both.

Some expert reader will be thinking: Oh, Devil! You are lying to us, because PDVSA can always offer more coupon and then it does not have to offer triple the amount…

Very true. But my calculations show that if PDVSA offered a 15% coupon for a 2018 bond in exchange for the 2016, it would have to offer you twice (Yes a factor of 2 instead of 3) as much as you have today, which would be cheaper, as three years of the extra 10% would only add up to 30% over the life of the bond. But going higher in coupon would certainly run into problems. And a factor of two is not exactly cheap.

But again, this is a theoretical case IDENTICAL for the investor than what he has today. On top of the double and the higher coupons, investors are going to ask for more. Either more capital, or more interest. Or both.

See the problem? It is very expensive to do this exchange and it means that in the end PDVSA would have a higher debt and the problem will be back in 2020, when PDVSA hopes (and prays!) oil prices would be higher.

Maybe PDVSA will just be running in place anyway.

To do this for the 2017N bond is not as onerous, but is still very expensive, I will not take you through the details, because it is a more complex case, but let’s just say that even at a 15% coupon, the bonds for 2019 and 2020 would be worth 35-40% of their nominal value, which implies you would have to pay people 1.5 times what they are owed today, plus a premium, plus the higher coupon.

Is there a cheaper way of doing this?

Well, yes, but no. Let me explain…

If PDVSA had not committed all that oil to the Chinese to pay for the Chinese loans, PDVSA could issue an oil-backed bond. Let’s say, for example, that PDVSA would sell oil every day to pay for these bonds (principal and interest) and each quarter, you would get paid part of the principal from a trust where the proceeds from the sale of the oil go to daily, plus interest.

If the bond is a two year bond, for example, you would get 1/8 of the principal paid each quarter plus interest. What’s the advantage? That if the bond is backed by oil exports, the interest rate (the coupon) would be much lower. Like way lower…5% maybe (guessing) on a two year bond. Now, an asset-backed loan like this, would be very attractive for investors, much like it was for the Chinese, as the structure is basically how the Chinese loans function: PDVSA sends oil, the proceeds go to a Chinese bank and the Chinese pay themselves from it.

Unfortunately, PDVSA likely has no ability to back the bonds this way, it probably has little spare production for this. But just think, it could offer the production as guarantee, just to lower the interest rate and then pay it with cash, if it has it. There are many ways to skin this cat…

Like the Republic could use some of the gold in the reserves to issue bonds guaranteed by the gold, but this would be just a way of lowering the coupon, the gold would be there just in case.

But, I digress. The main point is that a simple voluntary swap is not that doable due to the low bond prices. This makes it very expensive and seems like just kicking the can down the road.

Hard to get excited…and not as simple as people may think.

 

 

 

 


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