Archive for January 28th, 2015

Maduro Government Sends Wrong Signals To Investors

January 28, 2015

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It has now been a week since Maduro’s “announcements” and we have heard little about the supposed details of the new foreign exchange regime. It is as if the Government had no sense of the crisis that is coming, taking its time, Maduro traveling and not a single positive sign in the horizon.

This morning, I heard a conference call by a small country, in which its Minister of Finance and some representatives of its Central Bank participated. The presentation was concise, to the point, using numbers and then the whole thing was open to discussion. Very professional, very informative, it certainly improved my opinion about that country’s bonds.

This is in contrast with the attitude of the Venezuelan Government. Even when it had professionals handling the Government finances, Giordani set the tone that the Government would not meet with investors and markets should be surprised, not informed.

But now that the Government is in a crisis (and has no economics professionals), it continues with its attitude, not only not talking to investors, but sending the worst possible signals to them, at a time that the Government should be trying to reach out to markets.

But Chavismo thinks it is beyond that and that the market owes it something. Case in point is two transactions “revealed” this week by PDVSA and Citgo:

1) The stealth PDVSA 2022 bond

PDVSA has to publish before the 15th. of January a report on its consolidated debt. It did so this year and surprise, surprise, it turns out that PDVSA issued a new bond three months ago, without telling anyone about it…until now.

Yeap, in page 12 of the report, it says that on Oct. 28th. it issued US$ 3 billion of a bond with a 6% coupon and a maturity in the year 2022. The bond has not hit the markets yet, but the company’s debt did increase and investors took three months to find out about it. Not precisely a friendly gesture. In fact, it looks like this transaction was made in order to pay the maturity of the PDVSA 2014 issue. That is, PDVSA did not have all the money it needed to pay that issue.

Not a nice thing to do to investors.

2) The “fool old investors” Citgo issue and loan

Citgo Petroleum issued last year  a bond in the amount of US$ 650 million with a  coupon of 6.25% and at 100% of its face value. This bond had covenants (conditions) that limited that the company could issue more debt.

But last week we learned that Citgo is not only issuing new debt, but also issuing a loan. Except it is not Citgo Petroleum that is doing so, but Citgo Holdings, a newly  created (Did not exist on Dec. 31st) affiliate that now owns the shares of Citgo and some property that was transferred to it. The new bond and loan will be guaranteed with this property as well as 49% of the shares of Citgo.

Well, those holding the old Citgo bonds issued in 2014, found themselves losing close to ten points overnight when this was announced. The new notes are expected to yield more than the old ones. Investors must not be happy, they were essentially blindsided.

Thus, rather than trying to improve relations with investors at a time that the Government may need them, when and if there is a default, the Government takes the opposite road. It does not tell them what it is doing and it makes them lose money.

I would really like to listen in to these talks Maduro had in China, Saudi Arabia and the like in his last trip. I just wonder what is their attitude when they talk to those investors. If it is anything like the entitlement attitude they have with current bond investors, I don’t believe for a minute that Maduro got much in his trip.

And then they go and criticize capitalism…