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:


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:


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.

47 Responses to “An Untimely And Confusing PDVSA Bond Announcement”

  1. manny Says:

    can anyone tell me where pdvsa bond trade, where can you find them , how can you buy. I have a broker account with td ameritrade and it is impossible for me to located ,however, i am new to the whole thing of bonds and keep learning. any input would be great.

  2. […] cara al chavismo divenuta sempre più costosa e con meno margini di manovra, in quanto lo Stato non dispone ormai di cassa per finanziare colossali progetti sociali né ingenti reti di […]

  3. Kepler Says:

    I wonder what has happened with SIRAGON.
    I checked their twitter and there seems to be a guy there responding to people. I saw their site now and the copyright is 2012, which is not a good sign for a computer company.

    A friend of mine, engineer in Venezuela, actually bought a Siragon computer a couple of years ago and he was happy with it – his expectations were not very high, but it’s what he could easily get back then and he didn’t have a trip planned to buy anything abroad.

    • VJ Says:

      November 24, 2011
      The supreme & eternal leader announces the construction of the Haeir chineese appliances plant. For the year 2013, It will deliver 815,000 appliances to the venezuelan market….

      • Ronaldo Says:

        With Venezuela labor laws, corruption, no competition, high inflation, a president who is unreliable and stupid, Venezuelan citizens who know better, and a history of failed promises this factory will never be built. I guarantee that this a publicity stunt for Maduro, nothing more.

        They will find an old building a put a big SAMSUNG sign on it with Chavez image. Of course, no tours of building allowed and employees will not be found. China can use its own labor and produce everything in China just fine.

        Maduro will eventually declare that appliances cause electrical black outs and must be banned.

  4. Ira Says:

    Miguel must be busy. And I’m sure it isn’t because he’s hunting orchids.

    With the the decree/enabling law passed and no news here of it yet, it’s a certain path to further ruin. Like, if these morons would take just ONE step back, it would not only help the country, it would help THEM.

    But they refuse to take any advice, take any action, follow any path, that follows basic economics and simple reason. To them, ideology is king, the people be damned.

    What I find particularly interesting is today’s announcement that SAMSUNG has entered into an agreement with the government, promising low-priced appliances for years to come with a factory in VZ.

    What’s the story with THAT!?

  5. firepigette Says:

    In 1845, with the the almost unanimous consent of its citizens, the Republic of Texas was annexed by the United States. This was the underlying cause of the war.

    • Kepler Says:

      Yeah, right…gold is discovered in the year X in the Southern part of Amazonas state, 10000 adventures from Colombia, among them many mercenaries, start to pour in right away, they declare a new country 1 or 2 years later, when Venezuela tries to defend itself – three years later or so-, Colombia invades all of the Amazonas state…and says it was only the Free People of Río Negro who wanted to be part of Colombia…
      Similar kind of reasons were given by a hundred other nations about how they annexed territories from others.

      • VJ Says:

        In 1833, the British Empire occupied and annexed the Malvinas islands that were part of the Provincias Unidas del Rio de La Plata (Argentina today). Later on, the complete argentine population was expelled from the islands.
        Now 180 years later and 7,970 miles away, the Brits want the United Nations to conduct a referendum among the islanders to decide the question of sovereignty. And guess what: the actual population is around 3000 people, of which 90% is british.

  6. Dr. Faustus Says:

    Sabotage! Sabotage! Sabotage!

    Now it’s Pastor Maldonado singing from the Chavista prayer book. Not my fault! They sabotaged my Formula 1 race car!

    • VJ Says:

      Pastor also forgot to tell that U.S. F1 GP takes place in the formerly Republic of Texas, robbed by the evil Empire in 1845.

      • Kepler Says:

        Well, let’s be clear: Texas got stolen from Mexico. The Republic status was just a temporal thing

        • Ira Says:

          From the early 16th Century through the mid 19th Century, all or parts of Texas were claimed by France, Spain, Mexico, the Republic of Texas, the United States of America—not to mention as the Confederate States of America.

          So exactly how did the U.S. steal it?

        • Roy Says:


          “stolen” is such harsh word… True, but harsh.

          Seriously, in the context of the times, the U.S. was considered pretty clever for engineering that little territorial enhancement.

  7. OW Says:

    Wow, 15.7% on PDVSA bonds that will be paid in less than a year?!?!?!?!

    Sounds really tempting given that my bank account yields .01%.

    How do you buy those things in the U.S.?

    • Frackin Says:

      Oil Warrior, very easy. You head down to the Venezuelan Consulate in New York neary where you live. You walk in to the lobby, take your pants off, bend off and yell “fuck me!” Then you will gloriously be rewarded with PDVSA bonds.

  8. m_astera Says:

    Classic definition of a Ponzi scheme: Use the money from the new buyers/suckers to pay out the earlier ones.

    On another topic, just a reminder. The Cubans are in charge. Castroism is Trotskyism. The goal is not a robust or even functioning economy, the goal is to destroy or drive out the educated and the middle class. The goal is total control, and no one left but peasants and government.

    Will the Cubans pull it off in Venezuela?

  9. Ira Says:

    “In this photo provided by Miraflores Presidential Press Office, Venezuela’s President Nicolas Maduro holds up fist in solidarity at a transport workers rally in Caracas, Venezuela, Tuesday, Nov. 12, 2013. Maduro says he’ll present evidence in the coming hours showing how the U.S. Embassy in Caracas is plotting to destabilize the South American nation.”

    Did he ever present this evidence?

      • Ira Says:

        It’s true that my wife bought 3 bags of Harina Pan yesterday, including the different/sweeter one in the red bag to use for cachapas. (It’s FANTASTIC, except we can’t find good Queso de Mano.)

        So if this contributed to any shortages in VZ, we apologize–but the U.S. Embassy in Caracas didn’t order us to make these purchases.

  10. Bob Says:

    The dollar-lechuga chart has gone exponential. The problem is that there will be a correction, it cannot continue ascending at its present rate. The “bubble” will burst. Whatever it takes to create that correction will be significant. It won’t be a policy change or indeed an attempted cap on profits and inflation. Indeed any human attempt to alter the rate of climb will probably have the opposite effect.
    The chart may indeed be the harbinger of doom. And whatever that will be it won’t be pretty. However it may be short, sharp and a shock at least.

    • Carlos Says:

      Unfortunately there only one solution: freeziz bank deposits in bolivares, and limiting funds withdrawals, like it happened in Argentina with Menem in1991 and in Brasil with Color de Melho in 1990. Or a major corralito like plan Cavallo in Argentina 2.0.. and then a fiscal policy that I sincerely doubt. Only this way there will be a correction for some time
      The real problem is that bolivar is no longer a currency, is waste paper. You cannot make investments in bolivares, nobody will deliver a prime real estate condo or a farm, or a luxury car, in exchange of useless bolivares stacked in a bank….Nobody would sell dollars, unless you have some kind of arbitrage trade, like to sell dollars at 60 to pay bonds or cadivi dollars at a fraction of that cost…got it? There is no real currency, there is a megaliquidity, banks pray you to borrow money, they raise credit cards limits every 2 months..etc etc..

        • Carlos Says:

          Wait… I did not say CORRALITO or COLOR DE MELHO and MENEM plans are praised by people. I just said IT IS THE UNIQUE WAY TO STOP DOLLAR APPRECIATION (excuse me, BOLIVAR DEPRECIATION sounds more real).
          Today in Venezuela there is SCARCITY for amlost everything .. Dollars, food, cars, gold, jewels, condos, etc etc. Only one exception: BOLIVARES, everybody is stuffed with tons of useless and valueless bolivares.. and Central bank keeps printing more unbacked bolivares..and these bolivares try to fly as soon as possible to valuable assets like durable goods (autos, appliances, bikes, condos, etc) triggering a huge inflation (more than 100% YTD for these goods). Also the useless money tries to go to dollars, euros, etc…and this is the MEGA DEVALUATION near 300% we see this year, from 20 to 60+ Bs/$…
          So.. there are not enough dollars in the offer side to fulfill the almost infinite demand at any reasonable price (say..30 Bs). The only solution is to stop de DEMAND by lock bolivares in some enforced saving plan…got it?

  11. ErneX Says:

    Meanwhile the green lettuces are at 68, what’s that a 6 BsF increase in one day?

  12. carlos Says:

    Miguel.. option D.. private or semi-private for friends and family… oil contractors and suppliers, the Central Bank and, maybe, some state owned bank,..
    Now.. who and how will appoint a corporation as an entitled PDVSA supplier to be included in this private club??? …mmmm… a new big arbitrage opportunity..

  13. milton Says:

    Hi Miguel, my theory is that the drop was mainly due to some “enchufados” knowing about the announcement beforehand. Of course the market was thin and the latest headlines scared buyers, but this made it even better for them. As for the goverment economic team, I do not think they care more about properly managing the debt and timing of the announcement than making a few bucks for themselves. Yes it is a sad and maquiavelic theory.

    • moctavio Says:

      I dont believe it, there were a lot of institutions that wanted to sell since the Friday show by Maduro. This bond will only trickle into the market in time, will take a while, so it has little impact on trading immediately. I actually think there are still institutions that want to sell, but there is not enough volume and they are waiting for better prices to sell more. Oil prces are down, maduro is doing nothing for the economy, yields should go to pre-Chavez sick times. We are not there yet.

  14. Glenn Says:

    Is there any possibility that this bond could be used to generate more cash for a happy Christmas and a happy 8D for Maduro et al?

  15. Noel Says:

    From a distance, one gets a feel of government incompetence, confusion and now incipient panic. The result of this panic is store ransacking, webpage interdiction and rushed announcement about a bond issue (in case somebody questioned out loud how maturing bonds would be paid). I am not sure where we go next, except that it is likely to be further down the hole.

  16. Marga Says:

    Hi Miguel, do you think it is a good time to buy Venezuelan bonds?

  17. gabo Says:

    I think liability management/restructuring is a question of when, not if…

  18. CARLOS Says:

    Hello Devil…I just have a question for Miguel the smart analyst instead of devil the cool blogger… Is it a good time and break point to buy PDVSA 22? You know a 16% yield for 9 years is awesome!!!

    • moctavio Says:

      I think not, I think they go lower, they are down again today. There will be a bounce at some point, but I see no good news drivers in the horizon. The only one that intrigues me for a trade is the PDVSA 2014, 16% for 11 months sounds too tempting, but I will wait for a bounce on that one first.

  19. TheCat Says:

    Jesus H. Christ. Does nobody do their f***ing homework any more? VZ gets to feel the pain of the stupid, ridiculous, and asinine policies that HCF brought to the plate. Be assured that I’m NOT celebrating such ignorance and insanity. What do we, as members of the real world, do about this? Please give me/us some ideas as to how to help VZ!

    • firepigette Says:

      The Cat
      every person has to help himself and cooperate with others to do so collectively, without expecting others to do it for them because they cannot.As someone who lived in Venezuela since the late 60’s until 2002, I know quite well how dependence has been its downfall.Take that word and imagine all of its implications, and you will understand it.With dependence comes blame, comes apathy, comes irresponsibility, comes unreasonable expectations, comes lack of real growth,comes easy manipulation …..etc/

    • Ira Says:

      You’re allowed to say “fucking” here.

      Miguel believes in free speech, which includes swear words when properly used for emphasis.

  20. Roy Says:

    You aren’t the only one confused. From an article in Bloomberg on the drop in Venezuela’s bonds:

    “In the 20 years that I’ve been managing emerging markets, I have never seen the mismanagement of the scale that I’m seeing in Venezuela today,” Ray Zucaro, who oversees $375 million of emerging-market debt at SW Asset Management LLC in Newport Beach, California, wrote in an e-mailed response to questions. “The government effectively is promoting anarchy. This disconnect with reality, I’ve never seen it bigger than it is now.”

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