Archive for November 12th, 2013

An Untimely And Confusing PDVSA Bond Announcement

November 12, 2013

Sometimes it is not easy to write about Venezuela. I don’t want to be repetitive, thus I will not write again about Maduro seeing Chavez in pajarito (little bird) shape, after all it could all be a CIA drone playing with Nicolas’s brain (if any). That’s not a joke, it is hard to do worse than Nico is doing.

But today was promising, I could write about freedom of the press, because on the same day that we had a reporter for a major international paper telling us about his detention (And expelling!) out of Venezuela, and we had a screw up at the Government’s TV station, when someone began to show at VTV and Avila TV the same movie, Goodbye Lenin (Was it a joke?), until someone noticed  the irony and it was yanked off the air, forcing many Venezuelans to go to their favorite “quemaito” store to see the ending. Or when the Government forced all ISP’s, cable companies and the like to stop (read: block) webpages which broadcast the parallel exchange rate for the dollar, the same one that now has no importance for the Vice-President who was also in charge of announcing the useless ban of these webpages.

But given my involvement in finance, it was the news about the sharp drop in Venezuela and PDVSA’s bonds, the biggest single day drop in a while, that was sure to take the cake:

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PDVSA 2022 in the last few months

But then came Minister of Energy and Oil Rafael Ramirez and made the most untimely and confusing announcement, when he said that PDVSA would issue US$ 4.5 billion in a new bond (no specs), which according to reporters was first described as being private, then to both some private companies and the Government, only to be later described as to being sold openly to the market.

So, we don’t know. Par for the course in Maduronomics.

The question is why would the Government announce such an issue on the worst day for Venezuelan bonds in the last few years? This would certainly cost money, since the yield today was the highest, for example, for the PDVSA 2022, that it has been since the pajarito got sick:

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Yield to Maturity of PDVSA 2022, since it was issued in February 2022

The problem is, PDVSA had to issue, but of all days, announce today? Come on, you have to be kidding me!

You see, we all knew that PDVSA had to issue. In fact, when Ramirez said last week that HE (with capitals) would announce any new issue, I knew that it was a matter of when, not if.

Because among other things, PDVSA needs to pay the 2013 issue (about US$ 1.3 billion) on Nov. 17th. (by Monday pues). Given that the PDVSA Pension Fund owns about 600 million dollars, we all thought they would just shove a new issue up their throats.

Maybe that is why the issue is private, but public, but open. All at the same time. Maybe it will do many things at once. Maybe that is why it is so confusing.

Among other things it could:

-Be used to pay the PDVSA 2013 which matures on the 17th.

-Be used to pay the Central Bank PDVSA’s debts in dollars (directly with the bonds) or in Bs.. Thus, it could be a dollar bond and a Bs./Dollar bond at the same time. (These guys are creative!). As to those that worry about a “high coupon”, it could be low, it would just trade lower in the international markets. Now, if it is Bs./US$, the Central Bank would los money if it sold them in Sicad, for example, but if there is a big devaluation in December, then the Central Bank makes money. (Told you, they are creative)

-Be used to give US$ to companies, so as to reduce pressure on the parallel rate. Unless you really believe that this rate is not significant like VP Arreaza says.

-It could be used to pay oil service companies, like Ramirez said last weekend. But in this case, it will likely happen after a devaluation, so as not to affect the Government’s accounting.

Confused? Aren’t we all. It was as confusing a statement, as it was untimely.

As to the bonds, J.P.Moragn and Barclays downgraded Venezuela today. And lest you think there are no bulls left in the world, there is still Bank of America on that camp, after their nerdish report this week. (Quico is nerdier than me, I read it, he wrote about it!)

But my feeling is bonds go lower, even if they bounce a little before that. Simply put, there are too many people trying to get out and few buying (except shorts). Investors used to believe that there was some sort of commitment to pay under Chávez, but under Maduro, given what happened with Sidetur and what he has (or not) done on the economy: All bets are off!

It is remarkable that the PDVSA 2014 was yielding 15.7% today, a remarkable yield given, that it only has eleven months to mature. I don’t think PDVSA will not pay it, but after all, I am not that pajarito…

Note Added: PDVSA announced on the morning of Nov. 13th. that the bond will be private. It will have a maturity of 2026, with three equal payments in 2024, 2025 and 2026. The coupon will be 6% and the bond will be used to pay suppliers of the company to the tune of US$ 3 billion. The reminder US$ 1.5 billion will go the the Central Bank.

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