Barron’s: Venezuela Selling Gold, Goldman Selling Venezuela Bonds?

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 …”

Barron’s: 2 Experts Question Venezuela’s Gold, Cash Stats

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.

Barron’s: Gartman On Gold – Venezuela’s A Seller

Gold BarsThe 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? … ”

Mata Uang Venezuela Anjlok 55% Selama November

A cashier counts Venezuelan bolivar notes in a state-run supermarket in CaracasNilai tukar USD1 setara dengan 1.567 bolivar pada tanggal 1 November. Namun, pada tanggal 28 November, dolar bernilai 3.480 bolivar pada tingkat resmi pertukaran yang secara luas dipantau oleh

“Tidak ada yang ingin berpegang pada sesuatu yang akan bernilai 50% lebih sedikit dalam satu bulan,” kata Managing Partner di Caracas Capital Markets Russ Dallen.

Beberapa faktor menjadi latar belakang bolivar terjun bebas. Pemerintah telah dipaksa untuk memompa uang tunai ke dalam sistem karena uang yang beredar tidak cukup untuk membayar barang yang harganya lebih banyak.

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.



CNN en Espanol: Otra cara de la crisis en Venezuela: el pago de las deudas a expensas de su gente

venz-flagEstán funcionando con lo mínimo, dice says Russ Dallen, socio de Caracas Capital Markets en Miami. Venezuela está “viviendo en tiempo prestado. Tiene a su gente con hambre para pagarle a Wall Street, e incluso parece que esa estrategia se va a agotar”.

Las menguantes reservas del país son un reflejo de su profunda crisis económica, que ha dejado a millones de venezolanos sin acceso a alimentos básicos y medicinas mientras el índice criminal sigue disparado y la convulsión política invade la vida nacional.

Otra cara de la crisis en Venezuela: el pago de las deudas a expensas de su gente

Zombie PDVSA Bonds and the Venezuela Reserves Crash

Zombie PDVSA Bonds and the Venezuela Reserves Crash


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.


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:
(p.71, PDVSA 2020 Exchange Offering Circular, )


And then they carelessly drafted a different variation of the PDVSA 8% of November 2016 on another page:
(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):





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:


Bloomberg: Valuation de US$ 8,3 bilhões da Citgo pela PDVSA é questionado por traders de bonds

pdvsa-signA parcela na Citgo significa que poderia haver uma troca no controle, que faria outras dívidas vencerem antes dos novos bonds, disse Russ Dallen, sócio-gerente na Caracas Capital.

Dadas essas preocupações, os investidores têm reagido negativamente à oferta da PDVSA. Suas notas com vencimento em novembro de 2017 despencaram 2,7% em 19 de setembro.

A PDVSA está efetivamente dizendo, “aqui está um cálculo a grosso modo do que nós valemos, mas sem fornecer nenhuma avaliação externa”, disse Dallen, referindo-se ao Citgo.

Financial Times: Venezuelan Oil Major’s Debt Swap: the Beginning of the End?

venz-for-reserves“This is a worrying sign, in that no counsel for PDVSA, no counsel for Citgo, no counsel for the bondholders, no counsel for Venezuela and no counsel for any of the collateral, paying, trustees is putting their name on this document,” Russ Dallen of Caracas Capital wrote in a note.

Complicating matters even further, an array of foreign creditors are already in the process of suing Citgo for non-payment on various contracts, after the Venezuelan government sucked the company dry of cash, Mr Dallen notes.
“It is difficult to see many takers of this deal,” he points out. “What this means for PDVSA is that default is ever more likely. They needed to get this right and they didn’t.”

Rig Count Reveals Venezuela Oil Production to Fall Further

As the world watches the situation in Venezuela continue to ever more rapidly descend from one level of hell to the next – like some coked-up modern version of Dante’s Inferno – my role has almost become a Virgilian explanation to investors, officials and onlookers of what happens in the next lower, depressing ring.


There is no easy way to say it: The only thing Venezuela has keeping the lights on – aside from the obvious, seemingly indomitable spirit of its people — is its oil production and that oil production is falling rapidly.  Worse, according to our rig count, investigation and research, that oil production will continue to fall in the year ahead.




As the table above shows, Venezuela did not report its July production figures to OPEC — despite PDVSA President Eulogio del Pino’s mid-month promises that it was going to be up (or perhaps, because of those promises).


Instead, what the figures show is that by Venezuela’s own submitted count, its oil production has fallen from 2.587 million barrels per day (bpd) at the start of the year to 2.364 million bpd by the end of June (which it did submit) – an admitted decline of 223,000 bpd in 6 months.


But OPEC also keeps a separate count of oil production, and their figures reveal 2 amazing things about Venezuela’s July production:




First is that OPEC calculates Venezuela’s fall in production from January to July as 259,000 bpd lost. Second, that OPEC calculates that Venezuela barely produced over 2 million bpd in July.


While 2.095 million bpd is nothing to shake a stick at for most countries, that is down from 3.5 million bpd when Venezuela President Hugo Chavez was elected in 1998.  More importantly, as the table above shows, Saudi Arabia, which has lower oil reserves than Venezuela, is producing 10.477 million bpd.


But most importantly, that 2.095 million is sadly not what is available for export.  According to PDVSA’s 128 pages of financials for 2015, Venezuela burned 580,000 bpd domestically in 2015, which PDVSA’s audited financials also explain is down from 647,000 bpd in 2014.




That would leave just 1.5 million bpd available for export.


But, as PDVSA’s financials also reveal, Venezuela sent an average of 579,000 bpd to China in 2015 to repay the $65 billion that China has loaned Venezuela (As the price of oil has fallen, that 2015 figure is up from 472,000 in 2014 because it takes more bpd to keep paying the debt, the Financial Statements also reveal).  But remember, China has already paid for that oil with $65 billion in loans to Caracas and Venezuela has already spent that money, so mostly no real income to Venezuela from that 579,000 bpd (which also is counted at a discount).




So, take away another 600,000 from that 1.5 million bpd and suddenly you have just 900,000 bpd to generate hard cash from export — the bulk of which (around 700,000 bpd) goes to the USA and Citgo in particular, making the USA Venezuela’s biggest customer).  According to the Energy Information Agency, Venezuela’s exports to the USA netted Caracas just $4.3 billion for the first 6 months of the year (700k bpd multiplied by Venezuela basket average for first 6 months of $31.50 comes to around $4 billion).  And that is before the actual lift costs to Venezuela, which are between $10 to $23 a barrel, which is why there is not enough money to pay for food or medicine or bond payments – much less your suppliers and service providers, which bring us to the next leg down.


(By the way, you can find PDVSA’s Financial Statements in our database here: ).


Because PDVSA doesn’t have the cash, it has not been paying the companies pumping the oil, whether they be majors (Shell says they are owed over $500 million, for example), countries (India says their oil companies are owed $600 million) or oil service providers (Schlumberger and Halliburton together were owed $2.1 billion as of April).


As a result, Schlumberger and Halliburton announced 4 months ago that they were drawing down their resources and personnel in Venezuela.  Our investigations confirm that is indeed happening.  In July Lagunillas union officials revealed to Platts that 4 of the 6 platforms that Schlumberger operated on Lake Maracaibo were no longer operating.


To confirm the depth of the withdrawal, we started calling extended stay hotels in oil regions across the country where these companies house employees in the field.  At a hotel in Maturin in the state of Monagas, for example, the San Miguel near PDVSA’s PetroOriente headquarters there, Schlumberger had vacated over 80 rooms (over half of the hotel).




As a result, according to Baker Hughes (above graph), Venezuela’s rig count has fallen 19 rigs from 68 in May to just 49 active rigs in July.




It is the same for other unpaid oil service providers in Venezuela.  In May, Peru’s Petrex halted drilling at 28 of its projects and Argentina’s San Antonio Internacional suspended drilling at 8 of its 16 rigs in Venezuela.


What that means is that Venezuela’s future production will continue to fall – and likely below 2 million barrels per day.  Based on the trend lines above, we would not be surprised to see production fall even further to 1.7 to 1.8 million bpd as PDVSA continues in a vicious circle with the rest of the country into a new lower ring of hell.


El Nuevo Herald: Presagian más escasez en Venezuela para el 2017

Venz ElNeuvHer ShortagesPero incluso PDVSA ha registrado problemas en cancelar las facturas del petróleo liviano que importa para mezclarlo y mejorar el crudo extrapesado que produce en el país, explicó Russell Dallen, socio gerente de Caracas Capital.

La situación ha llegado hasta el extremo que PDVSA se está viendo obligada a pagar por adelantado esos envíos.

“Antes, el pago debía hacerse a la entrega, pero PDVSA no pagaba y el resultado de eso era que los tanqueros quedaban varados frente a la costa de Venezuela esperando semanas y semanas hasta que hicieran el pago. Ahora ya nadie se atreve trabajar así con Venezuela y le exigen que pague por adelantado porque su crédito no es bueno”, dijo Dallen.