(Este post está en español aquí)
Two or three weeks ago, PDVSA came out with a zero coupon bond the so called Petrobono 2011. It sold it to locals who, eager for foreign currency, bid low for the bonds. The process was full of missteps and errors, PDVSA only placed US$ 1,4 billion out of the planned US$ 3 billion and had to go through a second round selling the bond mostly to local banks as a hedge against the devaluation of the swap exchange market. Even today, two weeks afterwards, the Petrobono 2011 trades in the grey market (The company has failed to register yet in the international markets) at 66% of its face value, an equivalent yield of 25.8% for the two year bond and way above the 18.75% of the PDVSA 2017 issue.
This week, Ecopetrol, Colombia’s state oil company, a much smaller company than PDVSA, issued US$ 1.5 billion in a new 10 year bond at 99.6%, which gives a yield to maturity of 7.625% and by today that bond was at 103% of its value for a yield to maturity of 7.25%.
Two completely different paths for mighty PDVSA and much smaller Colombian counterpart, a reflection of the disparate ways the two companies are being run. It cost PDVSA, a company with higher oil reserves, revenues and earnings than Ecopetrol, a full 10% more to finance itself, expensive, even for the oil business.
The difference? While Ecopetrol has been given more independence and opened itself to private investment, PDVSA has done exactly the opposite. Ecopetrol placed 10% of its shares in the Colombian Stock Market as a way of forcing management to pay attention to the shareholders. At the same time, the company has opened fields to private investments and oil production is up. PDVSA on the other hand is being run as part of the Government, oil production is down and the company is being run inefficiently for the benefit of the Government and not the shareholders. (The people of Venezuela)
And while many think PDVSA does not deserve the large spread between its yield and that Ecopetrol (I think it’s exaggerated) it is the result of the lack of transparency and incompetent way in which the company is being run. Because while Ecopetrol issued the bond to have more money for growth, PDVSA just needed local currency to pay overdue bills, as it now produces oil, makes homes, owns supermarkets and imports food.
Even more ironic is the fact that while former PDVSA employees are banned and blacklisted by the Chavez Government, from working in the oil sector in Venezuela, at least three companies formed by these employees are actively participating in the expansion of the Colombian oil sector, servicing fields, exploring and producing oil.
It is in short, a very graphic glimpse of the difference in the two directions the two countries have been going in the last ten years. Ecopetrol chose the Petrobras model, PDVSA has been pushed into an impossible path of self-destruction. While hundreds of projects brought to market by Ecopetrol in the last ten years have found partners and investors, we await once again for PDVSA to close the first new project in the ten years of the Chavez era, but we suspect it will be delayed once again.
And any day that goes buy without PDVSA adding new production will eventually mean additional misery to the people of Venezuela, who could benefit from the additional investment, the lower financing costs and the closer supervision of their main asset: PDVSA.
But PDVSA belongs to Ramirez and Chavez and has become Roja, Rojita and at the service of politics rather than at the promotion of the prosperity of all Venezuelans. Because while at times PDVSA has disbursed lots of funds for social programs, it is no longer doing that as it has become the source of petty cash for Chavez’ pet international projects, promoter extraordinaire of businesses that have nothing to do with its core oil business and which only benefit of the deep pockets and infrastructure of the company.
It is indeed the tale of two oil companies, the tale of two countries, the tale of two different strategies, only one of which will bring prosperity to its owners. But even more foolishly, the path taken by Ecopetrol is the only path of success ever taken by oil companies anywhere in the world. Meanwhile, PDVSA has been taken in an unproven path, led by inexperienced managers and technicians who improvise and invent at every step of the way, leading the company into its own self-destruction.