National Public Radio: Maduro Opponents Denounce Goldman Sachs’ Purchase Of Venezuelan Bonds

RUSS DALLEN: They’re starving – the people are starving because there’s no food, and they’re protesting because they want a change of government.

LANE: Russ Dallen is managing partner of the investment bank Caracas Capital Markets. He’s also a foe of the Maduro government. Every day, he watches money flow out of the country’s central bank as it tries to meet the basic needs of its people. But last week, something unusual happened. There were deposits.

DALLEN: There was one for $300 million on the 24; another one for $400-something million on the 25, and that’s when we knew something was strange.

Bloomberg: Venezuela Government Said to Sell $5 Billion of New Dollar Bonds

venz65-2036straightBond markets will likely react with “befuddlement” when they open back up on Tuesday after being closed on Monday for the New Year’s holiday, said Russ Dallen, a managing partner at Caracas Capital.

“Taking place on Dec. 29 with no approval by the National Assembly and no promulgation notice in the Official Gazette, this smells of some kind of end of the year financial shenanigan from a government that is out of cash and is desperately trying to hide it,” he said in an e-mailed response to questions.

https://www.bloomberg.com/news/articles/2017-01-02/venezuela-government-said-to-sell-5-billion-of-new-dollar-bonds-ixgf5pwk

Americas Society Panel Discusses What’s Next for Venezuela and PDVSA (VIDEO)

ascoa-venezuelaNEW YORK — The Americas Society and Council of the Americas hosted four leading experts who discussed Venezuela and PDVSA’s financial standing, as Venezuela and the state-owned oil company faces payments of more than $13 billion through the end of 2017 as part of bond obligations.

In recent weeks, PDVSA has come under intense scrutiny after it offered investors a swap deal in order to postpone payments as its oil output continues to decline. Russ Dallen, who is the head of Caracas Capital and Strategic Advisor to the Venezuela Opportunity Fund, led a discussion of expert panelists on economics and politics in Venezuela that included Lucas Aristizabal, Senior Director and Head of Latin American Energy at Fitch Ratings; Diego Ferro, Co-Chief Investment Officer of $1 billion fund manager Greylock Capital; and Francisco Rodríguez, Chief Economist at Torino Capital and former Chief Economist in the early days of the Chavez National Assembly.

http://www.laht.com/article.asp?ArticleId=2424726&CategoryId=10717

 

 

Zombie PDVSA Bonds and the Venezuela Reserves Crash

Zombie PDVSA Bonds and the Venezuela Reserves Crash
 
venz-reserves-graph

 

This past week a newspaper in Arkansas published an obituary for a popular (fictional) character on “The Walking Dead” – Glenn Rhee — who was killed in the premiere episode of the 7th season of the popular zombie apocalypse drama.

 

I must confess that I have watched the development of Zombie “lore” with fascination: From the original slow moving zombies of “Night of the Living Dead,” to mixing the medium with an attack on the foibles of modern consumer society in “Dawn of the Dead”, to taking the mythology further down the wormhole so that, in addition to “The Walking Dead,” we now have a series about a zombie detective who eats the brains (and gets the memories) of the dead victims to solve the crime that led to the victim’s death (“iZombie”) and another series (“In the Flesh”) about the partial cure, re-animation and re-entrance of zombies as productive members of society as mere sufferers of “Partially Deceased Syndrome” (PDS) — which also brought equality to zombies by including the first televised kiss between gay zombies.  Donald Trump would definitely build a wall.

 

Aside from being the Halloween issue of this Report, we wanted to alert you to the billion dollar fall in Venezuela’s reserves that coincided with the billion dollar payment of the PDVSA 5.125% on Friday — and how zombie bonds meant that PDVSA owned the majority of that debt.

 

Friday afternoon the Venezuela Central Bank reported that its international reserves fell $1 billion from $11.8 billion to $10.895 – the lowest since 2002 when there was a national strike against Chavez.  That is down $31 billion from the 2009 high of over $42 billion.
venz-reserves-27-oct-2016

 

On Friday, Venezuela paid the maturity and interest on the $1 billion PDVSA 5.125% of October 28, 2016, an amount that roughly totaled $1.026 billion.

 

While Minister of Oil and Mining and PDVSA head Eulogio Del Pino warned earlier this month about not paying the PDVSA 2017s, he had always promised to pay the PDVSA 16s.  The reason for not including the PDVSA 16s in the threat or the swap was because PDVSA’s Pension Fund owned the majority of the PDVSA 16  and has since 2013, so he could easily pay the bonds and take the money out again.

 

In November 2013, rather than pay the full $1.2 billion of PDVSA 8% of 2013, PDVSA paid $705 million to the market but swapped the $440 million owned by the PDVSA Pension Fund into a newly created re-tap of $565 million of the PDVSA 5.125% of October 28, 2016, expanding the PDVSA 5.125% 2016 “Petrobono” from its original $435 million to $1 billion — making, not for the first time, the unpaid PDVSA 8% of 2013 a zombie bond that keeps living on.

 

In fact, the PDVSA 8.5% Citgo collateralized 2020 Swap Offering Circular  sloppily refers to those bonds as the PDVSA 8% of November 2016 – not once, but two times at separate points in the document.  Here is one:
pdvsa-8-extension
(p.71, PDVSA 2020 Exchange Offering Circular, http://laht.com/article.asp?ArticleId=2421844&CategoryId=10717 )

 

And then they carelessly drafted a different variation of the PDVSA 8% of November 2016 on another page:
pdvsa-8-2016-note
(p.72, PDVSA 2020 Exchange Offering Circular,

 

I can’t tell you how much time we wasted searching for this mythical zombie half-a-billion PDVSA 8% of November 2016 before we realized that PDVSA and its lawyers had repeatedly made an error and meant the PDVSA 5.125% of October 18, 2016 instead.  Here is the original notice in Venezuela’s Official Gazette in November 2013 (and the Gaceta Oficial has a mistake in the ISIN to be consistent and compound the errors):

 

venz-gaz-pdvsa

 

 

Our zombie hunting adventure aside, what the $1 billion fall in reserves and that paragraph excerpted above tells you is that PDVSA is running out of funds and is raiding the Central Bank as well as its Pension Fund for cash.  As we pointed out earlier this year and as that paragraph also reveals, PDVSA did the same thing with $900 million of the PDVSA 2015 bond last October, writing the PDVSA Pension Fund a promissory note rather than pay off the bonds, which are still unpaid to this day.  (By the way, PDVSA also reported that it paid the $90 million coupon due on its $3 billion of PDVSA 6% of 2022 on Friday, another bond that we helped discover when PDVSA secretly handed it to the Venezuela Central Bank in exchange for a loan).

 

Gold Reserve to Be Paid $600 Million Today?

 

As if the $1.026 billion paid on Friday and the $1.2 billion due on November 2 was not enough (down from $2.2 billion because of the swap), PDVSA contracted August 8 to pay Gold Reserve Inc. $600 million by today, with the remaining $169 million due by December 31, for the $769 million expropriation judgment that the World Bank International Center for the Settlement of Investment Disputes (ICSID) awarded in 2014.  Those of you who like us believe that PDVSA will not be able to make those payments can short the stock: GDZRF in the U.S. or GRZ on the Toronto Stock Exchange.  But beware, the stock has a very low daily volume and no puts and calls are generically available.  In addition, Del Pino was in China last week and an investment in this venture was a topic of discussion.

 

Venezuela in the U.S. Supreme Court on Wednesday
 

 

In addition to the $1.2 billion payment for the amortization of the PDVSA 8.5% of 2017 due on November 2nd, Venezuela will also be arguing a case before the U.S. Supreme Court on Wednesday.  The case concerns Venezuela’s expropriation of Oklahoma-based Helmerich & Payne’s drilling rigs and local company in 2010, but the Supreme Court discussion is really about a hair-splitting threshold procedural issue about sovereign immunity.  And the U.S. filed a brief in support of Venezuela’s interpretation, which calls for a return to the law of sovereign immunity as it was back in the early 19th century, which was also defined by an earlier U.S case involving Venezuela and its caudillo El Mocho — Jose Manuel Hernandez – which helped define the Act of State Doctrine back around the turn of the century.

 

Venezuela at the Council of the Americas on Thursday
 

 

Obviously it’s a big week for Venezuela, so on Thursday the always far-sighted Council of the Americas in New York has convened a panel to try to make sense of it all.  I will be moderating a brilliant group made up of some of the leading intellectual lights on Venezuela, including Torino Capital’s Francisco Rodriguez, Fitch’s Lucas Aristizabal, and Greylock Capital’s Diego Ferro, and I invite you to join us.  You can find out more here:  http://www.as-coa.org/events/venezuela-and-pdvsas-bonds-what-expect

 

Financial Times: Venezuela Oil Company to Launch $7 Billion Bond Swap

pdvsa-17-graphRuss Dallen, a managing partner at investment bank Caracas Capital, said between next month and the end of 2017 PDVSA and Venezuela faced combined debt payments of about $15bn.

“PDVSA has to pay almost 80 per cent of that,” Mr Dallen added. “They are in a bad situation [and] they don’t have a lot of choices. They are not doing this for the bondholders. They are doing it to save their own skin.”

http://www.ft.com/cms/s/0/1b658e8e-7a0f-11e6-ae24-f193b105145e.html