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…
The Devil's Excrement 
January 31, 2015 at 9:41 pm
http://lmgtfy.com/?q=do+a+barrel+roll
January 31, 2015 at 9:36 pm
do a barrel roll!
January 30, 2015 at 8:59 am
The crisis is not “coming”, IMO, it is already there
January 30, 2015 at 9:23 am
It started, but you havent seen anything yet, 90 days ago oil was at $80 per barrel, that is what is coming in today.
January 30, 2015 at 12:21 am
Cuanto, quant, the invisible hand? es canzudo! bzzzz bzzzzzzz
January 29, 2015 at 10:32 am
When you issue a bond to pay old investors from ANOTHER bond, isn’t that getting into Ponzi territory?
January 30, 2015 at 9:23 am
When you stop paying some people to pay others and sell new bonds, it is definitely Ponzi
January 29, 2015 at 7:27 am
This is OT but a signal as to how far they will go to stay in power:
El Nacional / Egdar López / 29 ene 2015.- La resolución 008610 del Ministerio de la Defensa, publicada en la Gaceta Oficial del 27 de enero de 2015, establece un nuevo modelo de control militar del orden público que incluye el “uso de la fuerza potencialmente mortal, bien con el arma de fuego o con otra arma potencialmente mortal”, como último recurso para “evitar los desórdenes, apoyar la autoridad legítimamente constituida y rechazar toda agresión, enfrentándola de inmediato y con los medios necesarios”.
They will allow the military to use deadly force to control protests.
January 28, 2015 at 9:57 pm
He has got no choice but to change the laws and sell oil drilling rights to foreign companies again. With Venezuelan crude selling in the 30’s, PDVSA will soon be operating a loss, if it is not already!
January 29, 2015 at 7:23 am
I beleive PDVSA has been spending more than they receive for some time now.
January 29, 2015 at 8:57 am
In the ’90s, when oil prices had collapsed from their 1981 peak, PDVSA entered into some partnerships with foreign companies, especially in the Orinoco tar belt. So there is a historical precedent.
January 28, 2015 at 8:20 pm
Maduro Government Sends Wrong Signals To Investors.
Two off the cuff snarks, not about the article, which is on the money, but about the GOV.
1) Of course it is sending the wrong signals. The GOV isn’t looking for investors. The GOV is looking for handouts.
2) In the 16 years of Chavismo, When has the GOV ever NOT sent wrong signals to investors?
January 28, 2015 at 9:56 pm
On your point 2: Over the past 15 years Venezuela has consistently and reliably paid the interest on their outstanding bonds. Those Wall Street investors who stuck-it-out, …..made fortunes. Sorry, but consistent payment of interest on bonds is a very positive signal.
January 28, 2015 at 9:58 pm
I agree, but bonds are paid until they are not.
January 28, 2015 at 10:56 pm
Point taken. My point would be valid regarding investing in private enterprise in Venezuela, however.
January 28, 2015 at 11:29 pm
Not really, they stopped compensating for expropiations long ago, including takung over Sidetur and nt paying its bond.
January 28, 2015 at 6:21 pm
And once again, I go off OT, but everything is interconnected:
As of today, U.S.-Cuba reconciliation is dead. It ain’t happening. And Obama’s ass is now hurting from this ass-fucking.
How does this play into VZ’s future, which now has to maintain its support of Cuba:
SAN JOSE, Costa Rica (AP) — Cuban President Raul Castro demanded on Wednesday that the United States return the U.S. base at Guantanamo Bay, lift the half-century trade embargo on Cuba and compensate his country for damages before the two nations re-establish normal relations.
January 28, 2015 at 8:26 pm
IIRC, when various US Presidents, such as Carter or Clinton, tried to improve relations with Cuba, Castro would eventually respond with some sort of hostile measure, such as sinking the boats of people fleeing Cuba.
Given the Marxist Marshall Plans that the Soviet Union and Venezuela have provided Cuba over the years, the “compensate us” ploy is the Castro bros’ way of saying that they just want another Sugar Daddy to keep their regime in power.
January 28, 2015 at 11:59 pm
What Raul Castro is asking (demanding) will pass a Republican Senate when elephants learn to fly. I have no idea what Obama had in mind with his “opening to Cuba”, but it seem obvious that it’s not working as intended, and Obama has egg on his face.
January 28, 2015 at 6:13 pm
I don’t think there are foreign investors left for Venezuela bonds, maybe some speculators betting that recovery in case of default will be dictated by the country’s capacity to pay. To them, I say good luck. Lending money to Citgo against 49% of the shares…really?
I think that Chavismo knows it is in a deep hole, but they look to Cuba: as long as you can terrorize your people with your police, you will find some cynics to invest in isolated projects (oil, tourism?) and then you will wait for oil prices to rise or the US to extend a helping hand. It can take years, but if the police or the army is willing to do your dirty work, you can afford to wait.
Of course, Latin American countries could decide to put pressure for change, but it doesn’t look it will be tomorrow. I hope I am wrong.
January 28, 2015 at 5:44 pm
You can’t analize the situation from your point of view, these people have a completely different set of believes and in order to keep them alive they will do anything within their means.
I think they already made their minds up and are trying to get the most of what they have until the rope snaps. And this is possible until the capitalist system will allow to do so. This is so grave that from our point of view it is fraudulent but this is the kind of behaviour ypu must expect from thugs and fanatics.
How many historic events are now being scene as irrational, and only because of the benefit pf hindsight. Well this is the case for Venezuela. We are witnessing its collapse.
Thus default is a highly probable scenario. And in regards to the chinese they were notified of what is coming as this thugs “kick” the capitalist and try to win a war even if it means destroying the country.
January 28, 2015 at 5:19 pm
The banks are finally authorizing credit card payments on the “cupo electronico” at Bs.12 to US$1.
I haven’t heard what’s happening to travelers but I assume it’s the same.
Twitter is reporting that there will be a meeting with the banks on the weekend to explain the new exchange rules. When that will be announced publicly is anybody’s guess.
Everything is in limbo with little arriving especially here in Margarita. Just 1 example is chlorine for swimming pools – there isn’t any. If you look on MecadoLibre you can see pots of 4 kg selling for over Bs.4.000.
Just early last year it was around Bs.300 per pot. It hen went to Bs.800, then Bs.1.200 & the last I bought in November was at Bs.2.200 . When I run out, which will be in the next week or so, we’ll have to close the pool for the guests at our posada. One source here in Margarita estimates it may take 3 to 4 months for the new shipment to arrive.
It’s getting really depressing.
January 29, 2015 at 7:04 am
5000bsf at techno quimica for loyal customers.
I drained my pool for maintanence. I heard that chlorine will arrive in february at normal prices again, 1000/1500bsf
January 29, 2015 at 7:21 am
Thanks for the info.
January 28, 2015 at 5:17 pm
Well miguel:
1. maybe this can explain in part why now Citgo is not for sale
2. I did not get it when you wrote: ” 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. ..” This affiliate now own shares of Citgo. Who was the previous owner of those transferred shares ?
Javier
January 28, 2015 at 5:19 pm
1) they were afraid that Conoc would stop the money from leaving the US, much harder to do with proceeds of bond.
2) PDVSA or PDVAmerica, dont remember which