Archive for March, 2016

Does A PDVSA Bond Exist If Nobody Pays Attention To It?

March 31, 2016

bono

This week Bloomberg published a story entitled “A mystery bond in Venezuela has traders scratching their heads“, which immediately was picked up by everyone and the news of this supposed “mystery” spread. What is interesting, is that there was really no mystery. Bloomberg itself had published a story on January 27th. 2015, some 15 months ago, entitled “PDVSA sold $3b of 2022 bonds to Venezuela Cen Bank in ’14”, reporting the issuing of the bond, as described in PDVSA’s January 2015 debt report.

This bond was much like many other bonds issued by PDVSA and sold to the Central bank, as well as Government owned banks and later used to be sold at the time in the Sicad market, which was mostly fed with these bonds. It just simply was not used because conditions changed.

So, what happened? Why did people not notice? Why are people surprised?

Simply put, since the Central Bank never sold it, people barely paid attention to it and they simply forgot it existed.

The true story is that people were quite aware at the time of this bond. There is no mystery, no surprise. What happened was that the bond was sold to the Central Bank, which intended to sell it into SICAD. The day the bond was issued, the other PDVSA 2022 bond with a 12.75% coupon had a yield to maturity of 15% and traded at roughly 70%-80%. Thus, the no-mystery bond would need to trade at 60% of its value to have an equivalent yield to maturity. That was the plan, sell the bond at the “official rate” in the SICAD market and the buyer would get about 60% the face value of the bond when it sold it.

Except that bond prices collapsed, as oil melted down in the ensuing weeks, as shown in the following plot for the PDVSA 2022 with the high coupon:

bono22

In the weeks following the issuing of the bond the PDVSA 2022 12.75% bond dropped from almost 80% of its value to below 40% of its value in the blink of an eye, its yield soaring to 30%. This meant that the Central Bank would have to sell the new bond in the SICAD system at a price of only 32-33%, almost half of what it had planned. Thus, the Central Bank shelved the bond, did not use it and people just forgot or were sloppy and did not read PDVSA’s debt report. But it was always there, Bloomberg had it in its database since the end of January and if you kept a tally of PDVSA’s debt, you knew that PDVSA’s debt rose in 2014 by US$ 3.2 billion, despite paying US$ 3 billion for the PDVSA 2014 in October of that year. This only happened precisely because the non-mystery bond was issued.

And much like the paradox of whether a tree falls in the forest, does it really fall if nobody is there to watch it fall, you have to wonder if then a bond exists if nobody pays attention to it.

Any trader surprised by the appearance of this bond was simply sloppy in following PDVSA and what the Government was doing at the time and why. There is no mystery, simply put, in 2014 the Central Bank was not willing to sell the bond at 30% of its value as bond and oil prices dropped, but with the current dramatic scarcity of US dollars in the country, it is now supposedly willing to do so.

As simple as that.

Note added: A good friend tells me that the whole thing started because all of a sudden Bloomberg gave the bond a price on March 22nd., however I haven’t been able to find anyone that has traded it….

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Devil Meets The Devil, As Little Happens in Venezuela

March 29, 2016

IMG_0388                                                             The Devil met the Devil on his vacation

Yes, I have been away, I went as far as Tasmania, where the Devil had the chance to meet the Devil (above) a gentle creature compared to Venezuelan politicians, all of which seemed to go away for Semana Santa (on both sides of the equation) And as Venezuela deteriorates, the stories are either static on important issues or making you wonder what the hell politicians are thinking.

One of the few things to change was the price of oil, which bounced back over 50% from its bottom. Yes, it is only at US$39 for WTI as I write this, but that is an extra US$ 10 billion than what it was at the bottom in February, which certainly works in the Government’s favor. It also works against those that think that the strategy is to wait out the deterioration, rather than take the initiative, a strategy that seems to be the main one, as the National Assembly will be in session again tomorrow and the only topic for discussion will be “the Pope’s exhortation for dialogue and peace in Venezuela”.

Go Figure!

And speaking of deterioration, the level at the Guri dam is 245 meters plus a few centimeters, as the Government admits that giving the whole country a week’s vacation during Easter, did not provide the benefits expected, something that could have been predicted by anyone with a little knowledge of the matter. People went home, turned on the air conditioners and TV full blast, using almost as much electricity as if they had been going to work. Much like so many other things that did not have the expected effect in the last 17 years, but Chavismo insists in running the country by the seat of their pants.

Meanwhile, there was a serious report today from Merril Lynch that the National Assembly would propose a Bill that contemplates, among other things, to recognize the debt the Government has with the private sector issuing US$ 23.6 billion in new Sovereign bonds, which would represent an increase by 75% of the country’s debt. Why this would be (could be?) a priority in the midst of the current crisis is beyond me, as such an act would have to be included in an overall economic plan/adjustment, but seems kamikaze-like as an isolated measure given the shortage of foreign currency in 2016. Bonds need to be paid, something the AN seems to not be considering in this proposal.

Meanwhile pro-Chavismo General Rodriguez Torres comes out and publicly backs a Constitutional Amendment to shorten the Presidential period and limit the Presidential term, the first openly Chavista leader to back such a proposal. He also supported the possibility of a recall referendum, calling it part of the Constitution that Chavismo proposed and saying that if the opposition gathers the required signatures, Chavismo should not fear it.

Maybe the opposition should just convince many Chavistas to come out in favor of this position, rather than act in such a timid manner so far in proposing new laws that confront the Executive and Legislative branches.

So, not much happened in Venezuela in the last few weeks. It did not rain, as the Government seemed to be resigned to the possibility of shutting down Guri if necessary. Meanwhile the opposition appears to be banking on the strategy that “God’s time is perfect” and somehow the economic/electric/political crisis will be Maduro’s demise. But somehow, I get the feeling that Chavismo only cares about its own survival and if it can reach January 10th. 2017 in power, it will get  rid of Maduro and complete his Presidential term.

Which makes the Devil above a gentle creature, compared to the usually devilish plans of Chavismo.

The Guri Dam And The Electricity Problem In Venezuela

March 13, 2016

rain.jpg

People in Caracas were rightly encouraged last week when the city got some rain. Stories about the Guri Dam reaching critical level have been scaring people for the last two weeks. Unfortunately, as you can see in the rain map above from Monday March 14th. at 1 AM, the rain that poured over the city is nowhere to be seen now. In fact, that rain seemed to come from the Caribbean and did not make a dent on Guri Dam, which the map notes. There is some rainy activity south of the dam in Amazonas state, but it is too far, while it is hopeful to see some.

The question is how bad the problem is or may become. To explain this, I resort to slides I showed in 2010 when a similar threat was present.

Reportedly, the level of the dam is now at 247.5 meters. Within this range, each day without rain implies a drop of 30 cm today, but will accelerate as it drops. The minimum level at which the dam may operate is 240 m. as seeing in the following slide:

guri1

What the slide shows is that the minimum level of operation occurs below 240 meters. Below this level, a number of problems begin to take place in which the turbines do not operate well (Cavitation and turbulence). According to the slide, below this level, eight of the turbines (some of which, in red, are not operational, will not work, taking out 5,600 MW of power out of the country´s network. This is about half what Guri can produce and Guri provides 60% of the power in the country. Thus, at this level, we are talking about losing 30% of the power of the country and , of course, the water level could keep dropping.

A more detailed plot of the problems is shown in the following plot (Both plots are official ones from Government’s electrical institutions):

corpoelec

As you can see, slightly below 240 meters, vortices will form and the turbines will have to be stopped. We are talking about 9 meters below current level.

Well, we are close, but the drought will have to last some 46 days, according to predictions made in this post in the comments by a reader in 2010.

This means that we are talking about end of April before in the critical area. Thus, while we have reasons to be concerned, the critical level is still far from where we are, as rains seem to be beginning to appear in the south of Venezuela. The weather is unpredictable, but a catastrophe is still far away and may not happen. Will keep you informed.

Graph added:

Someone sent me this plot. The slope at which it drops is 12-13 cm per day, which is a positive as it gives more time (70 days to be more precise) :

ope

PCNI: Things Looking Up, More Ships Coming In

March 9, 2016

pcnbi

Well, for a change, some good news for the Puerto Cabello Non-Baltic Index (PCNI). The number of cargo ships in the Puerto Cabello port has been increasing, slowly, but surely, as the levels of two to four ships a day have changed and as you can see above, we have seen some days of ten ships and oscillations between six and ten ships per day.

This is clearly a significant improvement over the previous month, but the number of cargo ships is is running about 50-60% of the number last year, but there has been a significant improvement so far.

My data taking has also improved. I used to record once a day, but as the number of ships dwindled, I became so interested in the topic (and concerned!) that I now go check it many times a day. The number of ships is the maximum number recorded every single day. The number was also checked with the incoming and outgoing ships in the same website marinetraffic.com to make sure the error, if any, was small.

I certainly hope the improvement continues…

Miners Disappearance Exposes Perverse Nature Of The Chávez “Revolution”

March 8, 2016

tumeremo

The story is quite straight forward and in any other country it would be a major scandal, there are simply too many perverse elements about the story: Last Friday, 28 miners who illegally mine gold near the Atensa mine in Bolivar state, did not return home in the evening. They disappeared mysteriously, reportedly in the hands of “El Topo” gang. Some of those who managed to escape the massacre, claim the Army and the investigative police were with the gang. The bodies were later paraded around, supposedly with an official escort, and taken away from the area.

The relatives went to the investigative police (CIPC), but the police asked that the survivors be brought in to be interrogated. Obviously, none of them want to  testify or accuse anyone.

These were not faceless bodies, the people provided 28 names, and it reportedly includes a woman who is pregnant.

And then came the first reaction by the Governor of Bolívar State: He came on TV to deny that anybody had disappeared. Even worse, he claimed he went around the region and found no bodies. That he had heard there was some form of confrontation, but no bodies, no massacre, no one had disappeared.

All of this, while protests began to escalate and the relatives of the missing miners began not only providing names and ID numbers, but pictures to show that these were not “phantom” people. They were very real.

The Governor went as far as tweeting on the subject, as the protests increased and roads were blocked on Saturday, like shown in the picture at the top of the post.

Here are two tweets by Rangel:

fr1

fr2“We make a call to the “people” of Bolívar to preserve the peace that characterizes us, let’s not make ourselves echo of false and irresponsible information” said the first tweet above,…and

“Cheap politicians want to tarnish the success of the registry for mining projects that the National Government has put forward with important advances”

Why the rush? Why deny so fast? Why make claims he could not support? A registry of mining projects is more important than 28 lives of Venezuelans?

As the protests increased and the proofs of the identities of the 28 miners became known, others parts of the Government reacted. The Prosecutor’s office and the People’s Ombudsman were forced to investigate the possible massacre.

By then, Rangel Gomez changed his tune, admitting the “possibility” that something may have happened, but again asking why it was that there were no bodies. But somehow, he does not ask where are the people that are missing. There should be “live” bodies, no?

This case is simply another remarkable example of the perverse revolution initiated by Hugo Chávez and now being followed (on steroids!) by Maduro.

First, the Governor’s reaction is typical of the revolution: Anything denounced is an attack on the revolution and it has nothing to do with reality and must be false. If the events took place far away from Caracas, then nobody will find out about it, so the denial will become the truth anyway.

Like the 130,000 homicides the revolution denies have taken place since 1999 due to the indolence of the Government.

Except in this case, the new spread further as the Deputy from Bolívar and others learned about it and they would not let go…

Second, the Governor shows no empathy and no compassion with the miners or their relatives. The case is something he wants to sweep under the rug fast, before those thinking of lending the Government money to invest in the country’s gold, change their minds (If they ever had the idea of lending absurd amounts guaranteed with gold in the ground)

To Rangel Gomez, these are not people or human beings, they are lost voters.

But things are even more perverse:

One, As in everything in the country, it seems that whenever there is economic activity, order is preserved by “pranes” gang leaders who control jails, towns, cities and mines. Since the Government is not imposing order, a pran does. The other day I was told of a fairly sizable town in Sucre State controlled by a pran. If you want to work on the PDVSA project there, you have to make the pran happy. In another town, there is a sugar project, when people from Caracas went to visit it, the pranes provided the security.

Two, the official media, whether VTV, Telesur, El Universal or whatever, has simply ignored the issue. Not only do they deny access to the opposition to their outlets, but if you are Chavista and want to denounce something like a massacre, you are suspect. Chavistas have fewer rights than anyone in Venezuela apparently.

In fact, it is quite strange, some media actually have shown Rangel Gomez denying the massacre, but one has to wonder what the viewers must bethinking since there have been no news of a massacre taking place.

And if this were not perverse enough, not a beep is heard from Nicolas Maduro. Nothing about looking into it, least of all going to visit to express his sympathy with the families. Nothing. A perverse silence that measures the importance (or lack thereof) that he gives to the possible massacre.

Because in the end Maduro thinks that acknowledging the possible massacre will simply decrease his popularity. Never having solved any problems that the population would appreciate, he just thinks it is all against him. Economic war, massacre war, that is how he views the world. War against Nicolas Maduro.

It has to be!

It is a perverse end for the Chávez revolution. The revolution was supposed to be for the good of the people. Whether twenty eight Venezuelans may have been massacred or not, may be alive or not, is simply irrelevant to a Government whose only goal and purpose, is to survive and stay in power, the people be damned.

The true nature of the perverse revolution is all that remains…

The Legend Of El Dorado, Turned Backwards

March 1, 2016

1621-map-by-Willem-BlaeuOne of the multiple maps pointing to the location of El Dorado

When I was an elementary school student, I always admired how the natives of South America invented and propagated the Legend of El Dorado in order to distract and mislead the Conquistadores. Not only did they succeed, but they did it for centuries, deceiving well learned and well educated men and inducing expeditions from Venezuela to Peru, looking for this mythical place of wealth and riches. The myth was developed so well, that there are many maps like the one above, purporting to indicate where El Dorado was located. Even Humboldt took some time away from his erudite pursuits to look for El Dorado in Guyana, to say nothing of Sir Walter Raleigh.

All of this comes to mind, because the saga of the Las Cristinas mine in Bolívar State, seems to be turning into a sort of Legend of El Dorado, except backwards, as the announcements surrounding the mine seemed oriented more towards dazzling and distracting the natives and expropriating foreigners, than about producing gold.

The story starts from what I understand, in the sixties, when the wife of one of the people that helped Jimmy Angel explore Venezuela’s Guyana region, obtained a mining concession to exploit Las Cristinas. The concession was the subject of numerous lawsuits, until the concession ran out.

From here, the story is clearer, Canada’s Placer Dome, signed an agreement with the Corporación Venezolana de Guayana (CVG) in 1990 or 1991, whereby Placer Dome would exploit the mine and give some percentage of the profits to CVG.

But then Crystallex, another Candian company claimed to have a concession to part of the mine, which stopped the project and later forced Placer Dome to sell rights to the mine for US$50, according to lore, when gold dropped in price to a company named Vanessa Ventures. The Government was not happy and expropriated Las Cristinas, giving it back to CVG.

Then in 2002, the Chávez Government awarded the mine to Crystallex and Vanessa sued the Government at the World’s Bank ICSID arbitration panel in Washington DC. But it was not until 2007 that Crystallex satisfied all of the requirements of the Government, including an Environmental Impact Statement and posting the bond required by CVG. But the Government denied the permit, despite all of the legal authorizations and approvals being present. Crystallex also sued in the World Bank’s ICSID arbitration Court.

In 2011, the Chávez Government nationalized the gold industry, prompting Rusoro, which exploited the El Callao mines and Gold Reserve, which had the rights to the Las Brisas mine to sue the Government at the ICSID.

In 2012, the Chávez Government assigned China’s CITIC to the rights to develop Las Cristinas (So much for reserving it for the Government two years earlier).

Don’t know what type of contracts or agreements were signed with the Chinese, if any.

As far as I know, the only company that produced any important amount of gold in all these years was Rusoro, which reportedly produced close to 100,000 ounces in 2010.

 So, much like the mythical El Dorado, Las Cristinas, El Callao, Las Brisas have all been but a myth, Venezuela has huge gold deposits, but other than illegal miners, and Rusoro for a while, not many ounces have come out it.

You can say that the politicians have turned it into a myth to defend sovereignty, promote the idea that Venezuela is rich and soon we will be even richer. Except that very little has happened.

And a new chapter in the myth was born last week, when, after Gold Reserve had won its suit at the ICSID and any Court in the world that was needed to enforce an award of US$ 740 million plus interest, that the Minister of Mines and President of PDVSA announced an MOU (Memorandum of Understanding, a piece of paper in which we agree to sign a contract, if we agree again later on the details) with Gold Reserve that apparently settles the case.

Or does it? Or did we just see a new El Dorado legend just being born?

Because this week, the Government issued a somewhat confusing MOU with Gold Reserve claiming:

-A joint venture with Gold Reserve (45%) and the Government (55%) will be created.

-The project “implies” and investment of US$ 5 billion in a win-win relationship

-The MOU puts and end to the legal situation at the ICSID.

-The investment in the project includes US$ 2 billion for the exploitation of the mine and US$ 2 billion in loans to the country, as well as the resources to get the company going.

Then the shares of Gold Reserve were suspended from trading, awaiting for the company’s interpretation of the agreement, which came out yesterday, in which the company said:

-They have signed an MOU with Venezuela that contemplates settlement, including payment and resolution, of the arbitral award of the ICSID.

-Venezuela would proceed with payment of the Award including accrued interest and enter transactional (settlement) and mixed company (“joint venture”) agreements, which are expected to be executed in approximately 60 days.

– It is anticipated that Venezuela, with the Company’s assistance, would work to complete the financing to fund the contemplated payments to the Company pursuant to the Award and for its mining data and $2 billion towards the anticipated capital costs of the Brisas-Cristinas Project. Upon payment, the Company will cease all legal activities related to the collection of the Award.

-The Brisas and Cristinas properties, together with the technical data with respect to the Brisas project owned by Gold Reserve, would be transferred to a Venezuelan mixed company, which is expected to be beneficially owned 55% by Venezuela and 45% by Gold Reserve

The differences are clear: First of all, Gold Reserve gets both Las Cristinas and Las Brisas, not just Las Brisas, which was the mine they sued for. Second, “Upon payment, the Company will cease all legal activities” and third, Gold Reserve will provide only “assistance” to obtain the funding. No more, no less.

But many people read all of this like a new El Dorado legend: Venezuela will get a US$ 2 billion loan, we have huge gold reserves, we are going to produce gold like crazy. And Gold Reserve will produce all this.

We shall see, but I doubt it.

A new El Dorado legend is born, but this time aimed at distracting mostly the locals, rather than the invaders…just like El Dorado, but turned backwards.

Note added on March 2nd.: The only way this could receive financing, in the absence of financials and an ongoing concern, is that Gold Reserve will “facilitate” transferring the 45% rights to the Chinese in exchange for US$ 2 billion loan to the Venezuelan Government and/or the project.