“It’s really bad,” says Russ Dallen, managing partner at Caracas Capital, a firm based in Miami. “They can’t invest any money, they can’t pay their providers…It keeps circling the drain.”
In his missive today, Venezuela critic Russ Dallen, a publisher, lawyer and Venezuela bond investor through Caracas Capital, offers some background on the political stagnation under Maduro. In short, the escalating violence and civil strife in the country means an impending “inflection point,” Dallen says:
” …the Maduro regime has been unable to raise significant foreign capital – aside from the loan from Rosneft (ROSN.Russia) against 49.9% of Petroleos de Venezuela’s U.S. refining operation Citgo (a story which we first help break on December 21) and the “morally repugnant” cash injection from Goldman Sachs last month. The Maduro regime’s refusal to co-exist and/or negotiate with an Opposition-dominated legislature (a task of functioning democracies all over the world) has led Maduro to unleash his own weapon of mass destruction – the hydrogen bomb of calling a National Constituent Assembly (ANC) …
The government is using this wafer-thin veneer of constitutional legality for two reasons … One is to bring along the military rank-and-file. While the upper echelons of the military are “all in” as they are making money with various schemes … The second reason for the legal lipservice is an attempt to give legal surety to potential investors (namely Russia, China & others interested in investing in oil, gold and mineral mining ventures) that were put off by the lack of National Assembly approval or a legally solid workaround. … the Supreme Court takes over the right to approve any new oil, gold or mineral investments since the National Assembly is in “contempt.” But Russia and other investors felt that ground was too shaky to invest billions of dollars, hence the regime’s National Constituent Assembly is designed to replace the obstinate National Assembly and pave that legal path for investment more solidly …”
Russell Dallen joins Michelle Makori to discuss the Venezuela crisis
Posted by i24NEWS English on Wednesday, June 28, 2017
Russell Dallen joins Michelle Makori to discuss the Venezuela crisis.
“Esos son precios de liquidación”, explicó Russ Dallen, socio de la firma de corretaje Caracas Capital Markets. “Es del tipo de operaciones que una persona realiza cuando sabe que al final no va a pagar las deudas, como cuando estás por declarar la bancarrota pero poco antes sales a comprar de todo, cargando hasta el máximo las tarjetas de crédito”.
Los bonos al portador, que en esencia permitirían a una persona transportar $5,000 millones anónimamente dentro de un maletín, son un instrumento actualmente muy pocas veces visto en los mercados financieros, tras haber sido descontinuados en Estados Unidos y otros países por convertirse en el instrumento perfecto para el lavado de dinero y la evasión fiscal.
La referencia mejor conocida sobre estos instrumentos quizás sea los bonos al portador Nakatomi, mencionados en la película Duro de Matar con Bruce Willis, donde el villano, Hans Gruber, esperaba escapar cómodamente con $640 millones dentro de una valija.
“No se pueden portar $5,000 millones dentro de un maletín en billetes de $100”, comentó Dallen. “Estos son instrumentos perfectos para terroristas ficcionales y, aparentemente también, para el régimen venezolano”.
The Wall Street Journal named the brokerage as a little-known outfit called Dinosaur Group, too small to have bought the bonds and sold them itself, so it would only have been an intermediary, argues Russ Dallen of Caracas Capital. And the Venezuelan central bank’s reserves rose by $442m to $10.8bn last Thursday, the day the bond trade is reported to have gone through.
“I find what Goldman did morally reprehensible,” says Russ Dallen, managing partner of Caracas Capital, an investing firm in Miami.
i24 News: Russ Dallen on Venezuela
CROSSROADS With Michelle Makori and David Shuster
The latest data show Venezuela had roughly $10.5 billion in reserves at the end of 2016 — most of it gold — with which it must meet this year’s debt obligations.
As Venezuela’s socialist economy suffocates under the weight of debt obligations, it is saddled with OPEC’s agreement to curb oil production — Venezuela’s major source of revenue. Analysts monitoring its montly debt and amortization payments note that April is a big month, with more than $2 billion due. Russia and China have helped shore up the nation’s balance sheet, with promises of future energy shipments and the use of U.S. Citgo refineries as part collateral, and for now no one is predicting default.
But the just-released data for the end of 2016 show Venezuela is struggling, with $7.7 billion in gold based on a 9-month trailing price of $1,272.42 per ounce, according to Caracas Capital. That’s down from $10 billion in gold reserves reported at the end of 2015 at a lower gold price, according to Russ Dallen at Caracas Capital. He adds that the gold figure is nearly half of the reported $14.6 billion in gold Venezuela reported at the start of 2015, and he thinks the government sold more than $2.3 billion in gold, as reported, to authorities in Switzerland last year.
The government of Venezuela and state-controlled oil company Petroleos de Venezuela together face $10 billion in debt payments this year, though April deadlines could prove especially onerous and February’s burden is sizable.
The government is on the hook this year for $3.4 billion and Pdvsa, $6.6 billion — with $2.9 billion due mostly by Pdvsa in April, according to Caracas Capital. It puts the total debt burden of Venezuela, an oil producer and OPEC member, at $71 billion, not including a number of special arrangements including loans from China to be paid back with oil shipments.
The country must also repay its debt to China with oil. That, combined with domestic consumption, leaves Venezuela with only 900,000 barrels per day for export, according to Russ Dallen of Caracas Capital Markets, cited by Bloomberg in the fourth quarter of last year.
The potential pressure on gold prices is reflected in what Venezuela has been doing. Oil is the country’s main export, and the United States imports some of it. (See our post on President Donald J. Trump plans to construct controversial energy pipelines.) Caracas Capital emailed us Dennis Gartman’s subscription newsletter published Friday with comments on Venezuela’s sale of gold as it struggles to produce oil revenue and make bond payments. Here’s the Gartman excerpt:
” … courtesy of our friend Mr. Russ Dallen of Caracas Capital … Venezuela sold $2.85 billion of gold last year, all of which was in the first 6 months of the year. According to the Venezuela Central Bank as of the end of November, Venezuela had $7.7 billion in gold remaining. Last year’s gold sales were not Venezuela’s first for we note that the Reserve Bank sold $4.58 billion worth of gold in 2015. It will sell more this year; it has no choice. Gold may be its only source of liquidity. Further, regarding gold, another friend in the industry, Mr. John Brimelow, informs us that the open interest in gold on the COMEX fell 4.3% Wednesday. This is not an unprecedented decline in the open interest, but certainly it is more than merely noteworthy. Finally, we remain of the mindset that the only rational way to be long of gold is via euros (EURs) and or via Yen, for the dollar remains strong and we ask again, “Why would one use rising dollars to buy gold when one can use falling EURS and Yen to do the same job? … ”
„Ce sugerează toată această situaţie este că guvernul a ajuns la fundul sacului”, potrivit lui Russ Dallen de la banca de investiţii Caracas Capital.
“What this says is that you have a government reaching the bottom of the barrel,” said Russ Dallen at investment bank Caracas Capital. He added that, combined, Venezuela and PDVSA disbursed some $9.5bn in bond payments in 2016, and would have to pay a similar amount this year.