Government surprised CVG can’t issue bonds (We aren’t)!

August 4, 2009

cvg transparente

This is the type of story that worries me the most. Some nut within the Government thought that one way of raising funds so that the Government could get to the end of the year would be to have the Corporacion Venezolana de Guayana (CVG) issue some US$4 billion in bonds. A couple of international banks were hired and eager to get their fees Deutsche Bank and Credit Suisse went to work.

These guys tried to be creative, suggesting that the company coul back the interest payments with the proceeds from the sale of the company’s gold subsidiaries. There were some other problems on the way though. First CVG does not even have audited financial statements for the last three years, least of all a credit rating (One does not come without the other), so you have to hire accountants and generate them. But second, CVG probably loses money (nobody knows, since financials are not available) and is likely to be cash flow (more money out than in) negative too. Finally, even if you generated the financials for three years, got the credit rating, provided the gold proceeds as guarantee, you still would not have the complete picture, as Sidor was incorporated into CVG this year and there are numerous new contingences involved.

So, if PDVSA has to come to market at a 20+% yield, imagine what CVG would have to pay. Investors would ask for 30%+ which simply does not make any sense. Thus, the advisors (who are collecting their fees for it) told them it was not possible or advisable for CVG to issue anything.

And according to today’s El Nacional, this actually “upset” the Government, to learn in this way that their dear CVG could simply not go to market. It is not clear whether they were mad at the advisors charging so much to reach this conclusion, or that they actually thought CVG was the “crown jewel” that Chavez seems to think it is.(It sells Aluminum for $1,000 a Ton which costs US$ 3,000 to produce, for example)

The worst part is that many in the private sector actually thought this was feasible. But the truth is that the whole picture was simply horrible: Money losing operation, with “C” rating, a multitude of operations, full of union conflicts, controlled by uncontrollable Government leader, wants to issue bonds guaranteed by cash flow from gold sales and the Bolivarian Republic of Venezuela.

Yeah, sure!

8 Responses to “Government surprised CVG can’t issue bonds (We aren’t)!”

  1. […] actually wrote about this already in August of last year when it was first floated. later Sanz himself said Chavez had approved the […]

  2. […] El Gobierno sorprendido de que la CVG no pueda emitir bonos (Nosotros no) Agosto 5, 2009 (This post in English here) […]

  3. gabrield Says:

    Um no surprise here. The Chavistas are smoking crack if they think someone’s going to take a leap of faith and give CVG money.

    I believe they wanted to keep the deal under local law which brings to light certain questions. What’s the value of the collateral they were offering if you can’t seize it when things go wrong? Why would an investor pony up the USD 2bn-USD 3bn they were asking for when the government itself turned down management’s request for an immediate captial injection to keep the aluminum companies running last year? Is it because no one really knows how deep the hole is?

    Again, no surprise here.

  4. moctavio Says:

    Kepler: Easy, your local expenses have been going up 30-40% per year for the last five years, while your dollar price per Ton dropped with the crisis. Add to that inefficiency, incompetence and mismanagement and you should get the picture. Venezuela is only competitive in oil and stupidity.

  5. Otro Roberto Says:


    As a friend of mine put it while talking about some other issues: “buy high, sell low, … and make it on the volume”. I believe that this is the economic thinking (if ever was one) in the government.

    I tend to agree with Gringo and Floyd.

    Failure in issuing bonds:

    Should it constitue a surprise?

  6. Kepler Says:

    “It sells Aluminum for $1,000 a Ton which costs US$ 3,000 to produce, for example”

    Why is this? Is production cost in Venezuela higher than elsewhere or is this something affecting everybody due to extremely low prices now and/or is Venezuelan aluminum somehow lower quality?

  7. Floyd Says:

    .(It sells Aluminum for $1,000 a Ton which costs US$ 3,000 to produce, for example)

    Sounds like one way to make some money is to have the CVG shut down. Then they can save $2000 a ton from the luminum they no longer produce.

  8. Gringo Says:

    Is there ANYONE in the Chavista regime who has even a college freshman level of comprehension of economics? It appears that “wishing will make it so” is the policy axiom.

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