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

March 31, 2016


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:


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….

33 Responses to “Does A PDVSA Bond Exist If Nobody Pays Attention To It?”

  1. IslandCanuck Says:

    Just checked the Corpolec website:

    Al 12 de abril de 2016:
    242,98 m.s.n.m.

    Don’t believe them. It has to be lower than that.
    That’s the number from a few days ago.
    The math doesn’t add up.

  2. IslandCanuck Says:

    I find it interesting that the main page of Corpolec has not updated the Guri level since March 31.
    As is typical with this regime when they think the news is bad they put there hands over their eyes, pretend it doesn’t exist and hope by some miracle it will go away.

    The level must be at or below the 243 level by today.

    They are making statements & moves to make it look like they are doing something – sending public employees home on Fridays (really bright idea) & asking women not to use hair dryers, among others.

    None of this will delay the inevitable collapse of Guri and sustained blackouts all over the country in the very near future due almost completely to the huge theft of resources earmarked for the electric system since 2010.

    • Dr. Faustus Says:

      I read this morning where they are putting the military in charge of all electricity usage. It will be fascinating to see what they will actually do when it hits 242, or 241. Apr 26th appears to be the shut-down date.

    • Ira Says:

      If you hired a comedy writer, you couldn’t come up with funnier stuff:

      Like Maduro saying that women look more attractive by just running their fingers through their wet hair, so a dryer isn’t necessary anyway.

      Unfortunately, comments like these are indicative of a sick mental pathology, and total denial of reality.

  3. Daveed Says:

    According to Jose Aguilar Twitter@800GWHMWH the level was 243.39 on 7-Apr, which means that the daily drop for the previous three days was 18.3cm per day. So until 30-Mar the drop was 16cm per day, to 4-Apr 17cm per day, and to 7-Apr 18cm per day. If the current rate holds, we will drop under 240 on 26-Apr. The shape of the basin and the rains are still wild cards.

  4. jak Says:

    Here is an article saying the level can go to 240 meters and an idiot stating it is already at 243

  5. Soozzee Says:

    More holidays, more electrical use. Vene government needs a special holiday!
    Maybe a long one.??!!??

  6. Lee Kuan Yew Says:

    Since I’m allergic to Financial matters, stupid at math, retarded with numbers, these somewhat complicated banking posts fly right over my head. But I will contribute my simple translation into buen criollo. In simple terms, culinary jargon perhaps, this is, as always in Kleptozuela, otro tremendo GUISO.

    As simple as that. Massive Embezzlement. Another trick in the book to STEAL lots of money.

    People keep saying Chavistas are “inept”. But look how adept they are at manipulating financial tools, hiding stolen money, play with international bonds and obscure loans. Quite proficient at that, huh? They do get the subtleties of international financial markets, don’t they? When it’s for Stealing purpuses, of course.

    When in doubt, if something smells fishy, and it’s a bit complicated, as the topic of this post, look no further in Cleptozuela: It’s simply about Galactic Corruption. Just another intricate way to steal as much money, as fast as possible, while fooling the uneducated “pueblo”, or the mathematically handicapped such as yours truly.

    • m_astera Says:

      And even with the entire country falling apart, they continue to try to steal more. How does a country based entirely on lies, fraud, and theft end up? Where those who actually produce things of value are held in contempt and considered low caste? Stay tuned to find out.

  7. IslandCanuck Says:

    With the fear of inviting the wrath of “Venny Trader” I’m posting an off topic comment that is related to previous posts by Miguel.

    From the Corpolec website:
    Al 31 de marzo de 2016:
    244,55 m.s.n.m.

    That’s a drop of .17 per day over the last 2 days which shows an acceleration.

    An engineer for Grupo Zuloaga is reported as saying that if it drops to 244 it will result in rationing of 6 to 8 hours a day in the cities of Venezuela.

    • Ira Says:

      It is indeed a very evil wrath.

      • Venny Trader Says:

        Island and Ira, all for the sake of having good debates and a discussion on a very interesting topic clarified by the author. So if I have to let loose my “evil” wrath for this, then so be it. Audaces fortuna iuvat

  8. Venny Trader Says:

    It would be interesting to know if there is an editor at Bloomberg. Who controls whether news are contradictory, duplicated, etc. It looks like a bunch of freelancers running all over the place.

    • Ira Says:

      So you’re actually claiming that Bloomberg doesn’t have a news editor?

      And that a news organization shouldn’t present information with opposing “points of view?”

      Vinny–you intrigue me.

      Exactly where do you live, where did you grow up, what do you do for a living, and what were your groundbreaking life events and circumstances?

      • Ira Says:

        Venny, because my spell-check only recognized Vinny.

      • Venny Trader Says:

        I am not claiming it, I am wondering. I don’t think it’s unreasonable given the facts. Otherwise, it is just really poor journalistic job. One thing is opposing views and another one is just presenting an article in a misleading way.

        I am not sure how giving you my professional and personal background would change the facts we are discussing. I spent many years of life looking at financial markets and reading news. I still do. So if there is one thing I can tell you is not to take something at face value just because it appears on the news. And let’s also be clear, all
        main media outlets and banks have been getting investments in Venny and PDVSA bonds wrong for a loooooong time. Still, people like to stick with particular storylines just because it
        fits their political view without just looking at the facts.

  9. moctavio Says:

    Well, let me attempt to guess. 1) Pdvsa said it sold it to the BCV, but the BCV could have turned around and given it to BdV. Neither of them reveals in detail their investment portfolios, BdV is obligated to do it, but does not. 2) My guess is that BCV. 3) does not disclose details.

  10. adriana Says:

    Hi! Good job! but I think that more interesting questions that people should be asking are: 1) finally which bank kept that bond (in the PDVSA report it t said that Banco de Venezuela gave it to BCV) but it is not clear if it was a final sell or a REPO. 2) Which institution beared the burden of the loss . 3) If BCV kept the bond how did it presented in the financial statements?

  11. Ira Says:

    OT on the amnesty bill.

    1) Assembly approved.

    2) Maduro will veto.

    3) Assembly will override veto.

    And then what?

    How can Maduro be allowed to hand it to the Courts to uphold his veto? How is that separation of powers, or any semblance of Democracy, when he appointed all these judges?

    What makes it more confusing for me is that it could go to the Court anyway on behalf of Maduro’s wishes. In the states, and I don’t claim to know a lot about this stuff, the Executive can’t/doesn’t ever bring the Supreme Court into legislation.

    It’s always a third party not government affiliated.

    • Venny Trader Says:

      How is this topic relevant to the post about the mystery bond? Can we focus on the point?

      • Ira Says:

        Do you know what my “OT” above means?

        Also, I don’t think you’re familiar with this site:

        Because of Miguel’s format of posting one story at a time, and not all that frequently, it’s common for us to go OT. And 99% of the time, it’s appropriate.

        • Venny Trader Says:

          The fact that others, including yourself, go OT on a regular basis doesn’t mean it makes sense to do it, hence my comment. The owner of the blog, Miguel, can agree or disagree but I can have an opinion as a reader. If I want to read about Amnesty law, there are various sites covering this topic (Maduradas, Noticias 24, Aporrea, Noticiero Digital, etc.) where one can make a lot of comments. OT comments like yours dilute the level of the discussion which is not ideal because then this ends up looking like Noticiero Digital with a bunch of illiterate muppets repeating whatever is in the news every 2 min. Just a suggestion.

          • Ira Says:

            I don’t think you understand:

            I’m not asking for your approval, let alone your permission, to go OT.

            I don’t quite understand your thinking process to make you believe otherwise.

            • Venny Trader Says:

              Ira, I am not telling you that you need my approval. It’s a suggestion.

            • .5mt Says:

              So anyone thinking La Scuderia has a chance in Bahrain? I bleed Ferrari red, but I am a big Alonzo fan, this from yesterday…

              Alonso: “I’m not going to retire.”

              Herbert: “You’re not retiring?”

              Alonso: “No, I’m a World Champion. You ended up as a commentator because you weren’t Champion.”

              Dawg willing the bells will ring in Maranello this afternoon.

              (Dat’s how you do OT)


  12. Eduardo Says:

    Thank you for the interesting supplementary information.

  13. Ira Says:

    No–the tree definitely fell. It had to grow in the ground to make it that big, and it had to fall in order for you to find it in its fallen state.

    What’s debatable is whether it made a sound when it fell.

    Which I find a retarded debate, because science proves that it HAS to make a sound when it falls.

    And don’t get me started on religion…

    • HalfEmpty Says:

      No, it makes vibrations in the air when it falls. I there are no ears there no sound.

      • ura Says:

        No, because spiders and ants and birds either heard or felt the sound vibrations. And the birds flew away like fucking crazy once that tree started tumbling down.

        Even the ones with their BACKS to it and didn’t see it falling.

        Because it made noise.

        (I love discussions like this.)

  14. Pablo Henning Says:

    Very Well Put.



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