PDVSA and its Hong Kong Exchange Plans: Ignorance or Deception?

March 12, 2012

Once the Venezuelan press began writing about the intention of Chavez’ Government to place shares of part of PDVSA in the Hong Kong Stock Exchange via the sale of stakes in joint ventures to China’s Citic, as reported here and in Setty’s blog and Caracas Chronicles, the Government went into denial mode, having been caught rojo-rojito-handed with the fingers in the privatization till.

First, there was a curious Bloomberg story, in which a company official anonymously confirmed the story, but denied that this was strictly a privatization, “as shares will be offered in a holding company created to manage PDVSA’s stakes in the joint ventures and not in the state oil company itself”.

Jeez, these people really must think we are stupid,as the share of a company that just manages PDVSA’s stakes, can’t be worth as much as the stakes themselves. But, Mr. anonymous, pardon me, selling any company owned by PDVSA is a privatization, no matter how much you like or dislike euphemisms.

But that explanation was not noted much by the local press, so that none other than the President of PDVSA and Minister of Energy and Oil Rafael Ramirez, declared not once, but twice, that PDVSA was not planning to sell shares of any part of the company, because PDVSA has “never done much in the Hong Kong Stock Exchange and the idea is to negotiate, via Citic, any sort of transaction, but mainly bonds”

And you have to wonder, whether this statement reveals the absolute ignorance of the Minister or just another incredible attempt to lie and deceive about the true plans of PDVSA with its Citic sale.You see, if you take Minister Ramirez words at face value, PDVSA has never had anything to do with any Stock Exchange in the world, as far as I know, except the Caracas Stock Exchange. This is the only exchange where its bonds have ever traded.

The reason is simple: Bonds rarely trade in exchanges, they are usually traded by professionals “over the counter” and PDVSA’s bonds are no exception, so the explanation is extremely suspect. The reasons for this are many, you can read most of them here, but basically, bond issues are small, many bonds are fairly illiquid, they are affected by slow moving news like changes in credit quality and interest rates, so they move slower than stocks. But in the end, brokers have no vested interest in making their markets more transparent. It is a good business.

And the Honk Kong Stock Exchange is no exception, while some bonds are issued and registered in it, they trade rarely. For example, you can see here , that of the bonds registered in that exchange only, one, uno, traded in all of January 2012 , a Government of Hong Kong bond maturing in 2014 . And December 2011 was not much better. So, Mr. Ramirez, there is no true opportunity in doing what you said. You hear!

The question then boils down to whether this was simple ignorance or just another attempt to hide the true intentions of PDVSA and the Chavez Government to do whatever they want or feel with our country and its resources.

Once again, the idea of selling these pieces of the joint ventures is not a bad one, PDVSA needs money, but somehow it would seem as if Venezuelans should have a priority, no? Imagine, for example, getting US$ dividends on your Petropiar shares under the current exchange controls.

That’s how you distribute wealth…away from the Government.

But clearly, this plan to sell Petropiar shares was never meant to be made public. Only the revolution was privy to it.

What else is new?

28 Responses to “PDVSA and its Hong Kong Exchange Plans: Ignorance or Deception?”

  1. CharlesC Says:

    Where are those 700 farm experts from Cuba?

    • m_astera Says:

      That’s a good question CharlesC. I’m somewhat connected with what’s happening in agriculture in Venezuela but I haven’t heard a word about Cuban involvement for probably three years. Doesn’t mean they aren’t still around, but they aren’t doing anything notable. A friend is doing some amazing work with biological activators in rice and banana crops mostly; but that’s all private farms. The government operations aren’t worth bothering with.

  2. Ira Says:

    What happened with the Iranian dairy farm/cooperative that was launched several years ago?

    Does anyone here remember?

    It started with the fact that most of the cows were killed by snakes, and then, you never heard another word about it.

    Isn’t communism just wonderful?

  3. CharlesC Says:

    O/T- but this is rediculous. Chavez mentioned via satellite an inauguration of a company(Vice President and several ministers were there)-get this!
    A company to raise chickens. RAISE CHICKENS. C’mon man I know I heard a who!! You are telling me that Venezuelans need someone from another country (Argentina)to hold their hands to raise freakin’ chickens. What a bunch of morons! THis is definitely nothing to brag and hoot about…

    • Ronaldo Says:

      Gerrardo Damas and sons are Venezuelan and among the best in the world in high-tech poultry farms. I wonder if they left Venezuela with all their knowledge? Chickens are replaceable. Good poultry farm operators are rare.

      • CharlesC Says:

        I think most chicken in Venezuela is imported from Brazil?
        Talking about “stupid” though- the USA pushed by Bush-passed a law
        allowing whole chickens to be shipped to China for “processing”
        and then return to USA-pre cooked, pre packaged…
        They get the Idiot award for sure…
        (I urge everyone not to eat food from China)

        • Ronaldo Says:

          The vast majority of exported chicken from the U.S. is frozen. Live poultry is difficult to transport, feed, maintain sanitation, and pass customs inspections. I have doubts about this story. Live breeding chickens or hatching eggs would be miniscule amounts.

          Grains for poultry feed, under Chavez, would almost all be imported. Chavez has or will expropriate any productive grain farms in Venezuela. Comiendo pollo en Venezuela es comiendo pollo de EU o Brasil.

    • m_astera Says:

      A wiser agricultural investment these days would be growing grain to feed the chickens. It’s my understanding that almost all of the chicken feed in Venezuela is imported.

      • CharlesC Says:

        Yes, I read about that too- corn from the US?

      • m_astera Says:

        I think the imported chicken feed is from whatever source is cheapest that a chavista insider has connections to, so they can buy it for say $100/ton, turn in a fake invoice for $500/ton, then get the $500 at 4.3 Bs and sell the US$ for 8.5 Bs. It’s my understanding that is the main goal of “business” in Venezuela. Whatever item was supposedly bought with the money is irrelevant, which explains how and why thousands of tons of food can be left to rot at the ports: the profit was already made on the inflated invoice and the fake exchange rate and that profit was way higher than what can be made selling the goods.

        Don’t know if I’m allowed to say that here, so MO feel free to modify this post if needed.

        A couple of years ago I heard about some contaminated/moldy chicken feed brought into Venezuela from Nicaragua I think. Supposedly that feed killed a lot of chickens and even the bedding and manure was contaminated and unusable for fertilizer. No doubt someone made a few
        million off the deal anyway; see first paragraph above.

        • Alexander Says:

          Venezuela is in the tropics, so, the yields for cereals is lower when comparing to countries in subtropical climate, USA, Argentina, Brazil, South Africa, etc. Allow me to give some examples, al cereals need more or less 90 days to be harvested; tropical areas have two seasons, the wet season with rains for six months, and the dry season for six months. Apart of that, you get at most 4-5000 Kg/Ha, which means in the tropics that are getting the most. Some technologies allow you to get up two harvests a day, but the yield falls and cost increases. In USA, South Africa, Argentina, Mexico you get between 7-8000 Kgrs/Ha, nearly double. Let me give another interesting example, corn for instance. In the most productive areas in Venezuela a corn bush will have no more than three corncobs, in South Africa o Iowa you get 4 or 5, nearly double the size. The only cereal we did very well at world standard is rice, but price regulation has kill rice, a Venezuela is importing it regularly. Deregulating the economy we can get the best only if we could export oil accordingly with the reserves we have, and that is a lot, so, we have to do what we have, as simple as that, leave market forces to do the job, reduce the size of government, reduce the number of people dedicated to politics, we have to do just what the gods did at the very beginning. We cannot produce everything, nobody does. Regarding meat and chicken it is important to know that we have always produced to satisfy Venezuelan demand, meat and chicken for industrial processing most of the times is imported. Venezuelans do not like to eat frozen chicken, we are now doing, “la necesidad tiene cara de perro”.

          • CharlesC Says:

            “We cannot produce everything, nobody does”-yes, but, there are lots of
            opportunities to produce lots of things that are not being produced.
            Example-fish farming, tree farming. And the processing industries associated with these..
            And -much more irrigated systems to grow -oranges for example.
            Don’t see many greenhouses? Look at Colombia- major exporter of
            flowers for example.
            Actually, besides agriculture being smashed down by CHavez, the main other in tourism.How many millions lost because of Chavez?
            (I read in the US 39 out of 50 states- tourism is the major employment and revenue ..)

            • Alexander Says:

              Yes Carlos, you are right, for all of that I claim to let markets forces to do the job, if we can produce rockets, market forces will arbitrate it, but for the time being, sell to people what is today prohibited by law and constitution (we must change it as sonner the better). I know a example, for instance, until 2003 the “camaroneras” in Maracaibo exported “camarones”. Chileans have lectured all of us, they decided to build a particular envoronment to save salmons of travelling 6000 miles down the oceans and getting back to the montains; now they placidly swin, eat, do exercise, enjoy the cold water in Valdivia to eventually end in very well done rolls o sashimi.

        • Carlos Says:

          Absolutely correct!!
          The business goal in Venezuela is just to access either SITME or CADIVI currency.
          Then you buy offshore anything as cheap as possible and “import” same goods as expensive as possible. Your profit is hold in a real currency like dollars or euros. Then you can sell the imported goods with just a 10-15% official margin, even you may loose money and you will look like a true and honest business man for the government price regulators.

      • m_astera Says:

        World grain logistics changed dramatically in the late 1800s and early 1900s following the settlement of the American and Canadian West and the building of the railroads. Each town in the grain growing regions had a grain “elevator” or silo to which the surrounding farms brought their grain to be loaded onto trains. The development of farm machinery and the gas/diesel engine brought us to where we are now. There are a lot of links in the chain, and if any of them break world grain distribution suffers.

        Another seldom recognized factor is the quality of the grain grown, which has been dropping rapidly over the past century. NPK fertilizers are great for producing high yields, but poor at producing high quality feed. Combine that with plant breeding and selection based almost entirely on yield, not nutritional value, and we get what we have today: extremely poor quality grain crops grown on depleted soils. I know what I’m talking about because it is the area I work in every day. Genetic modification to resist insects or herbicides does nothing to improve nutritional value. Weeds and insects are stimulated by the depletion of the soil and the low food value of the crops grown.

        Alexander’s argument about yield in the tropics vs the temperate zones is not taking nutritional value into account. Perhaps a field in the temperate zones can produce 8 tons per acre of grain, but that grain is grown on depleted soils. It is high in cheap carbohydrates but low in protein, vitamins, and essential minerals. Four tons of high-quality high protein grain grown in the tropics or anywhere else will easily surpass that cheap grain in real food value.

        If all that counts is weight and volume, the farm that produces the most wins. But if one is growing food, not fiber and bulk, the nutritional value of the crop becomes more important. The same applies to the farmed salmon; they may be big and easy to harvest, but the nutritional value of that salmon is far lower than ocean caught salmon because of what they are fed. Because they do not eat ocean krill etc that feed on plankton, the meat of farmed salmon is grey in color and must be dyed orange to look like salmon. It is also deficient in the essential fatty acids EPA and DHA, thereby losing its most important food value for people.

        Valuing food by volume of production for the least possible cost and highest possible profit misses the real point entirely. It is supposed to be food.

        • Alexander Says:

          Thanks a lot for your information, I know nothing about nutritional variable, I apreciate your information. I just compared yields, and the competitive factors regarding only that variable, Kgrs/Ha. There has been lot of research in Venezuela, by Polar and some universities, Agronomy in Maracay. I know that have tried for many years how to increase yields, but it did not improve by much. If we go around the globe, and watch carefully agriculture in the tropics, America Latina, Africa, Asia we will see that they have developed other cultures, fruits, for instance. That is the logic of economics in these areas, to produce the cultures where they have comparative and competitive advantages. Trade will complete the equation. Technical progresss will do the rest of the job. In corn, for example even at the higer costs to produce it in Venezuela, national production it is competitive since, other factor entering in the production function have very compepetive prices, salaries and energy, Economics is crucial since the especies that we like to eat, beef, chicken, pork, turkey, must eat combination of these same cereals. corn, rice, weath. soybean, sorgo, etc. These days, the are now producing biofuel, the arepa we eat will increase its price sustantially.

  4. VJ Says:

    Following is an excerpt from a US embassy Wikileaks cable, about PdVSA Finance Director Victor Aular.- (a.k.a.) “Pdvsa official” and “Mr. anonymous”.

    PDVSA Readies New Bond Issuance to Pay Off Debts
    2. (C) Petroleum Attache (PetAtt) interviewed Victor Eduardo
    Aular, PDVSA Executive Finance Director, on September 11 when
    Aular was identified on the visa line by an alert Consular
    Officer. (NOTE: Aular is the senior PDVSA financial
    executive. He reports directly to PDVSA Financial Director
    Eudomario Carruyo.) In the wide-ranging interview, Aular
    (strictly protect throughout) first confirmed that PDVSA was
    prepared to issue new bonds in the market. He confirmed that
    one of the economic measures President Chavez would announce
    was the issuance of at least $3 billion in bonds to help
    control the parallel exchange rate (currently around 5.6
    strong Bolivars (BsF) to the Dollar; the official exchange
    rate is 2.15 BsF:USD). Following the GBRV bond issuance,
    PDVSA is prepared to conduct several smaller USD-denominated
    bond issuances before the end of 2009 to raise USD in order
    to pay outstanding USD-denominated arrears to oil service

    Signed by DUDDY


  5. moctavio Says:

    That’s why the shares thing is clever, the Chinese give Chavez the money, but they can turn around and sell them at a profit and give Chavez some money again. They reduce theirs risk and keep Chavez happy.

  6. ois Says:

    Chavez says they are sending 410,000 barrels a day to Chinese markets, but Chinese customs data shows 322,000 barrels per day. Are the Chinese getting frustrated and nervous with Chavez and Ramirez? Could the Chinese be forcing PDVSA in the Hong Kong Stock Exchange, knowing they will have to open their books and come clean, because they no longer believe the words that come out of Chavez and Ramirez mouths?

  7. The Shadow Knows Says:

    too funny so what happens when the chinese get mad at you?


  8. Dr. Faustus Says:

    Ignorance? Deception? How about thievery!

    Sorry to bring this up again, but,…Here you have the government of Venezuela seizing the assets of major oil corporations (they’re all evil you know), and then turning around and selling a portion of those same assets (Petropiar) to the Chinese, at an undisclosed price, for an eventual listing on the Hong Kong stock exchange. The cumulative theft of all corporate assets by Hugo Chavez ( expropriate them…!) and the Bolivarian Republic amounts to what,…25 billion? 35 billion? It’s kinda like stealing someone’s bicycle, offering a buck in recompense, then turning around and selling that same bike for three grand on the Hong Kong stock exchange. I would call that theft.

  9. Ronaldo Says:

    Personal gains will be made by someone or some group of people. Most likely Chavistas but there could be some Chinese in there also. One thing is certain-El Pueblo will lose on this deal. No one has discussed the great benefits to the country.

  10. Alexander Says:

    It is not ignorance Octavio, it is something even worst, lie and deception as you mentioned. That was the same question I made last week when Ramirez said at the beginning of the week that were bonds and no stocks. I declared twice last week, to a radio and to a newspaper interview. I noticed that no many people in the media know exactly what is going on in exchanges and with bond traders. Believe me most of people thinks that exchanges deal with stocks and bonds, as BDC did in the past..

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