Before 2016 is out, PDVSA may be forced to file for bankruptcy. It’s hard for a Venezuelan to even read those words without flinching. The image of PDVSA as a bottomless barrel out of which you can always get more and more cash is so deeply burned onto the Venezuelan political psyche that the words “bankrupt PDVSA” seem oxymoronic – like “dry water” or “moderate chavista.”

PDVSA can’t go bankrupt. I mean, surely that’s just impossible…or is it?

What seems like plain lunacy to normal people has become a live debate inside the legal profession. Bond markets have just about concluded PDVSA will not make its October bond payments. With some PDVSA bonds now yielding north of 130% – the kind of interest rate that would make your neighborhood payday lender blush – for Wall St, it’s a foregone conclusion: barring a dramatic surge in oil prices, PDVSA will default.

As we’ve long discussed on this blog, PDVSA bonds have no Collective Action Clauses. There is no way to negotiate an “orderly” default of PDVSA’s debt: even a large majority of bondholders can’t compel a small minority to accept it.

And believe me, if there’s a default, those holdouts will not be few. The people still buying PDVSA 2016s this late in the game are not doing it because they’re expecting them to get paid on schedule: they’re betting that the amount they’ll be able to recover after long, painful, protracted court battle with the company will be higher than the paltry price the bonds are going for right now. The fancy term is to call them legal arbitrageurs, pero en verdad lo que son es bachaqueros de tribunal.

Come to think of it, why don’t PDVSA bonds have Collective Action Clauses? They don’t have Collective Action Clauses because PDVSA is a company, not a country. There’s a name for what happens when companies default on their debts, and that name is:

Bankruptcy

It’s precisely because countries can’t declare bankruptcy that sovereign bond contracts have these odd-ball collective action clauses. CACs are the exception. The rule is bankruptcy. A company that can’t pay its bills knows what it has to do: go to court and beg a bankruptcy judge to put some orden en la pea with its creditors.

You need a process like that because without “bankruptcy protection”, a corporate default would soon turn disorderly. Different creditors would make bids to seize various bits of the corporation’s assets haphazardly, some might seek to get its bank accounts frozen, soon, the company wouldn’t be able to operate at all.

And that is very much the kind of scenario PDVSA could quickly find itself in if it misses those October bond payments – a scenario that, lest we forget, is now the consensus among those who put actual money into PDVSA these days.

Come October, PDVSA could easily find itself in a situation where it’s impossible for it to transact or operate outside Venezuela’s borders: its shipments and refineries seized, its bank accounts frozen, the legal and financial infrastructure of a large transnational corporation jammed.

Of course, los rusos tambien juegan, and PDVSA now appears to be actively taking steps to sidestep this fate. This piece in Bloomberg, which describes the creation of a new “Compañía Anonima Militar de Industrias Mineras, Petroliferas y de Gas” or Camimpeg, caused a minor freakout in PDVSA bond markets. Why? Because it’s easy to imagine how the government could try to shield PDVSA’s assets from creditors by just shifting them to a new corporate shell – a military shell in this case.

Are there all kinds of clauses in PDVSA’s bond contracts aimed at preventing this kind of shenanigan? You betcha. Is it legal? In principle, no.

If PDVSA is found to be hiding and transferring assets to avoid debt collection it could even accelerate the maturity of some of the rest of its financial debt. In theory, any transfer done to defraud creditors could be declared void by a judge. It’s a deeply dangerous game they’d be playing.

At this stage, the most likely outcome would appear to be a series of enormously complex, costly, long-running legal battles across multiple jurisdictions with contradictory or unenforceable rulings that will pay for many a fancy lawyer’s BMW while leaving Venezuela’s oil industry operating under an impenetrable cloud of legal uncertainty long into the future.

The scale of the legal mess being cooked up almost defies description.

As a Venezuelan-registered company, PDVSA would have to declare bankruptcy in Venezuelan court. At the same time, since PDVSA’s bonds are issued in New York and are subject to U.S. law, the legal proceedings to recover assets would be launched there, setting the stage for a kafkaesque jumble of suits and countersuits in multiple jurisdictions with no end in sight.

The Venezuelan part of this alone would be a kafkian nightmare. Bankruptcy proceedings are notoriously slow and cumbersome, and prey to all the same vices the rest of the Venezuelan court system is sadly famous for.  And remember that a PDVSA bankruptcy procedure will include more than just bondholders: all its other creditors will have a dog in that fight too. Remember PDVSA’s 20 billion commercial debt? How about that 2 billion loan from Chevron? You may not remember, but you can be sure they do.

And there’s more: bankruptcy will force open the Pandora’s box that is PDVSA’s labor liabilities, include the long-delayed severance payments owed to the 23,000 workers fired during the 2003 Paro Petrolero.    

Just consider that VIASA’s (in comparison, infinitely simpler) bankruptcy is still tangled up in Venezuela’s bankruptcy bureaucracy 20 years after the fact. A PDVSA bankruptcy would certainly drag on for decades.

And all of that is before you stop to puzzle through the intractable interactions between Venezuelan and U.S. court rulings that would tangle this thing up into one giant, hope-defying knot.

But forget the legal mess: it’s the political and, well, historic resonance of the thing that interests me. At some point, a formal declaration would have to be made that PDVSA is now bankrupt. Just pause to grasp the impact of that.

As a symbolic bookend to the total economic calamity the Chávez era has become, one could hardly hope for greater clarity. Chávez always spurred his followers to dare to dream the impossible. Now, his movement has delivered. Because if there’s one thing every Venezuelan knows is that for PDVSA to go bankrupt is impossible.

48 COMMENTS

  1. I suspect Camimpeg was set up to serve as middle man between pdvsa and its contractors. This allows the military cartel to take a slice. It may be the price paid to have the military support a coup. The only pieces of the machinery missing their lubricant are the lower level military, which will be kept in chains by the Cuban g2 agents seeded in their midst.

    • agreed. would not be surpised if they use new structure to trade in precursor chemicals for cocaine production. 2016 will see threefold increase in cocaine stemming from record crop yields in colmbia, peru and bolivia. The trend is for final processing in venezuela. The military is responsible for these logistics.

  2. Under Venezuelan law Pdvsa owns no rights over any oil deposits , they dont appear among its assets , They belong to the State in exclusivitity and are inalienable ( they cant be sold mortgaged or embargoed). Pdvsa is granted a right to exploit those deposits subject to its performance of certain duties relating to its exploitation , By law if Pdvsa becomes incapable of exploiting those deposits by falling into bankrupcy or any kind of insolvency then those rights of exploitation become revokable . Additionally by law only the State ( either directly or thru Pdvsa or thru any other State Company or thru mixed companies approved by the NA) can engage in oil exploitation activities . Also by Law where the eploitation rights are revoked or lost any assets used in the exploitation of the oil fields to which they relate automatically pass to the State free fom any cost.,…….No court in the US or the UK can take decisions which nullify the above provisions of Venezuelan law ……just the same as Venezuelan courts cant take decisions which abrogate the laws of a foreign country…….The chances that a US or UK court can decide to allow any private party to take possession of assets which are now used by Pdvsa in Venezuela to carry out its oil industry operations is very remote indeed……… . Of course if the assets and rights of exploitation pass to another State company as a result of a Pdvsa bankrupcy then that would be a different company , which would not automatically be held responsible for paying Pdvsa unpaid debts …….., its shipments of oil, it could be argued, would not be automatically subject to seizure to pay Pdvsa debts .

    The situation is different where offshore assets are concerned , there it might be possible for creditors to seize Pdvsa assets including the shares of companies it owns directly and operate outside Venezuela (local laws in the places of registry and incorporation o the companies which Pdvsa owns directly may make such seizure more or less difficult depending on the relevant legislation) . Where the affiliates are owned through other affiliates the whole seizure process can become much more complicated and involved ………..

    This means for example that if Citgo shares or those of any offshore holding company are held by Pdvsa , then Citgos assets may be seized by Pdvsa’s unssatisfied creditors , if the shares are held through other affiliates in other countries then again the legal situation can be much more complicated.

    Oil shipments are usually sold under a ‘title and risk passing at the loading port’ provision so that on leaving Venezuela they are the property not of Pdvsa but of the Buyer and thus are not subject to seizure by Pdvsa creditors. The collectible price payable by the buyer however can be subject to seizure in most foreign jurisdiction , maybe if the buyer pays the shipment in a bank located in a jurisdiction where the laws dont automatically allow that kind of seizure some of the money can be collected by Pdvsa , perhaps the case in China or Russia , but otherwise this is a vulnerable point for Pdvsa .

    Not to be forgotten is that some 50% of Pdvsa’s costs and maybe an even larger percentage of its investments are made up of services or manufactures of foreign origin payable in foreign currency , these purchases if located abroad and registered in Pdvsa name may also be subject to seizure …….which would make it possible for the creditors to seriously hamper or hinder Pdvsa ongoing Venezuelan operations .

    Pdvsa’s commercial and financial arrangements are complex and extensive , they dont all fall under US Law , in some cases English Law applies in others the applicable law may have to be defined thru litigaton….., suspect most Pdvsa vessels are not owned directly by Pdvsa but by a chain of intermediate affiliates and joint ventures , most of them are heavily mortgaged , seizing them might prove challenging or not very effective. Citgo itself is heavily morgaged to pay creditors which are bound to be priviledged , to be able to claim precedence over other bond creditors….the chinese financial arrangements will no be easy to unriddle to allow for bondholder creditors to seize assets or funds which are owed to them …

    In any event Pdvsa’s default although not necessarily bringing about all the calamities that one can imagine can in the end have a catastrophic effect on Venezuelas very shaky economy and thus in the life of all Venezuelans who depend on its already much reduced oil income to import the things it needs to avoid even greater hardships than those which it already suffers and even stave off starvation ……..

      • Of that Quico , I have little doubt , It will be a lawyers banquet to beat all lawyers banquets , however to the extent that legal problems make seizure difficult or daunting and any creditor measures make life difficult for the govt ( and the country) the incentive will be there to be reasonable and seek some agreement where the consequences of a disorderly or chaotic default are mitigated for both creditors and Pdvsa (and the country) !!

    • Well said Bill, and i can imagine seizing anything from a country’s armed forces might be a bit of an international impasse, so anything done in that matter will be treated as an act of agression against our glorious fatherland military (sons of Bolívar, no less).

      That’s when still belonging to opep can be useful for the revolution: setting a ban for us allies to buy from us would be a delicate issue if opep has our back.

      Chavistas act like someone who knows the world’s about to end when it comes to economy, but this “strategies” seem to indicate some kind of long run game.

    • Mother of mercy. Just reading it gives me a headache. It’s the perfect symbol of chavismo, an enterprise completely ruled by the reds and utterly demolished. Let this be the true Legacy of the Eternal.

    • If they tried that, the legal mess would be huge, Venezuela’s oil production would drop dramatically. Think about it, you have, for example, JV’s with foreign partners that have to agree to the changes, how long will this take? In the meantime, it is still PDVSA that owns 60% of the JV’s. Think about setvice companies that give Pdvsa a credit line. They would have to fully reserve the amount owed, they are nit going to work for the new outfit. Who will ship oil to Venezuela to mix with heavy crudes? If you ship it FOB, the shipment can be attached, if you ship it payable when it gets to Venezuela, you may never he paid.

      The facts that laws have been interpreted traditionally in a certain way, does not mean that you will get instant rulings, things can be tiedup in Court for years, what happens to Venezuela in the meantime?

      And finally, do you think the Chinese will go along withall these changes? Why? The Chinese are fed up with the way PDVSA and Venezuela work, there is no certianty and they have told the Government in no uncertain terms that default is a no no.

      They should call the new company hara kiri, they will never get away with much.

  3. Would you lend money to a bankrupt thief who is trying to hide assets? If they do this then the only sales to Venezuela will be on a pure cash basis, absolutely no credit terms and no surrendering of any bills of lading (possession of the goods/product) before payment in full. That will just choke off imports from the current trickle to nothing….nada. What a bonita robolucion

  4. Truly horrible outlook, as painted aptly by Toro. The new military company, as defined in the Gaceta, is a service company, not another PDVSA. It would sound more in line with what Fernando says: a new way to capture some portion of the payments to contractors, by serving as an “in betweeen”. The military have no capability to serve the oil industry and do the specialized tasks that the gaceta enumerates.
    But since contractors to PDVSA are not getting paid in time, the purpose of this new mamotreto could eventually be that of shielding PDVSA assets from bankruptcy. It only takes a modification of the purposes of the military company for it to become a “new” PDVSA.
    Whatever it turns out to be, it is a sign of accelerating disaster.
    I believe an Allende scenario is improbable, given the high degree of corruption among the military, but a Noriega scenario is becoming more probable…… “as time goes by”.
    Will (Uncle) Sam play it again?

      • The most you could expect from Obama is that he would give his Iranian friends a loan to take over the secret service from Cuba and offer to loan funds to pay the airlines receivables. Trump would be not be a friend but a awesome collector of US debt.

    • I think this scenario is nearly unimaginable. No popular support in the US for this type of action, no international political support…and a much tougher task than Panama under Noriega. Larger country, more developed military, a certain % of the populace armed to the teeth with Kalishnikovs and grenades, Cuban intelligence presence, FARC presence…and to top it all off, the US would then become responsible for the rebuild of Venezuelan society.

      This is not on the radar screen of any segment of the US electorate, left or right. Were any presidential candidate to so much as suggest invading Venezuela he or she would be committing political suicide.

    • There are precedents to companies owned by army personnel acting as intermediaries in contracts between public entities and private business . Knew of a case where a private milk processing and packaging plant ( with its own distribution system) which used to process large quantities of milk produced by neighboring farms became dependent on supplies from a Govt import agency as the milk formerly produced by those neighboring milk farms dried up as the govt started to take them over.

      During the first year they just bought the imported milk in bulk , packaged it and distributed it among its many customers , then the Govt milk importers told them that they would have to buy the milk through the company of some middlemen (composed of military personnel) at a somewhat higher price ( evidently to allow the intermediate company a margin commission on the milks resale) , the intermediate company was a paper company , all it did was invoice to the private company the price of the milk being delivered by the public agency and nothing else.

      After a year the private milk company begun receiving threats from the govt agency that their supply would be cut off because they were failing to pay for the milk they purchased . When the milk company protested that it had paid the intermediary the full price of all milk deliveries the govt agency said that nonetheless they had not received the payment and that if payment was not made inmediately their permits to distribute their milk product outside their plant would be revoked by the GNB.

      The govt agency made no mention that an intermediate company was being used to pay for the milk at the express instruction of the govt agency .!! the whole thing was a scam operation !

    • There is less than 0% of a Noriega scenario. No one wants to, let alone thought about it, and even if they did there is no support in any sector of the populace or governing elite for such a move.

      Merely suggesting it is ridiculous.

      • Not as ridiculous as saying that anything is less than cero percent possible. Now, that’s ridiculous. As Venezuela becomes more and more a narco state, as the Obama administration could be replaced in the short term by a less complacent one, as the country goes financially bust, as Toro says, and creditors from all over the world start fighting over the spoils, a scenario of foreign intervention can only be ignored at our peril . Scenarios, Rory 14, are not predictions. They are valid ways to try to see into the future, different from the ridiculous linear predictions, Oracle style, that postulate that something is less than o% possible. OAS could intervene by sanctioning Venezuela, The European Union could intervene, the U.N. could intervene, the U.S. could intervene.

        • agree with Gustavo. btw, modern warfare is not like panamas operation just cause. venezuela invasion not required. military action would see us turning off your lights, something you need no help with. nothing is off the table and a new president who wants to tackle cocaine, crime, insecurity and immigration in the americas has plenty of material. never say never and never underestimate american public ( message to kepler). venezuela military is further entrenching itself into cocaine business. we need not make up reasons to conduct war. its all a matter of priorities

          • A little known stat is that US cocaine overdoses and deaths reversed the declining trend several years ago and are now spiking in direct corolation to increased inflows thanks to Venezuela. Everyone agrees chapo Guzman made a good news story.

  5. Thanks to Francisco Toro and Bill Bass (who deserves a byline here) for pointing out some of the implications of all this. A smarter government might start, right now, with its counter-narrative, in which the international vultures of capitalism, backed by el imperio, bring down a plucky Venezuelan company just because they hate Bolivar.

    But what will happen to the country when it has NO foreign exchange?

  6. Forgotten in this equation is a report that PDVSA requested a 2 year suspension of 500,000 barrel per day oil shipments to the Chinese for debt repayment. The Chinese, apparently, said no. That could have been the last straw.

  7. I dont think the term banruptcy will apply. If PDVSA defaults, bondholders may seek assets abroad, but I doubt very much PDVSA will seek banruptcy protection, after all, if you are not succesful, creditorstake the equity in the company, which simply can not happen. This will be a disordered default and reestructuring and there may be lawsuits for years, but banruptcy or bankruptcy Court! Doubt it very much!

  8. There are two scenarios, namely, the one you are discussing here, the disorderly default, and the one which might be more intelligent an orderly one, but a technical default, -the voluntary one- with lots of bondholders taking the “quita y pon” cash and new bonds, this time, sovereign bonds, and give away the otherwise very bad outlook. Under this stage, there are going to be some bonds holdouts, might be, some vulture funds could get it into and purchase these bonds holdout at 25% face value, the government advisors say that there are not to be many.
    On the other hand, what I think is going to happens with this military company, it is a very and carefully political move which is supposed to warrants the “civic-military” which Maduro name every day, a pact between two corporations, the political one, PSUV and Maduro, and the military which would take over the oil, mines, industry, and for that the would have the time to reconcile the contradictions between both.
    Remember that the civic-military union is a very old Chavez idea, which started with Plan Bolivar. What we have in front is the natural evolution of the Venezuelan rent seeking “society” exactly at the bottom, in a situation where de oil rent flow is negative, -fiscally speaking. So, today there is a little to capture, rent seeker, particularly militaries were nervous.
    But, allow me to remind that that process was lagging nearly four years from what Chavez was planning together with the FAB, when the financial crises we have today knocked the door in 2012, and Chavez knew it, but it was the time on which Chavez’s illness worsen and everybody there was trying to gather the pieces; that was as well a time which the financial crises was not perceptible by the media and for some people which enjoy analyzing Venezuelan economic misfortunes as an export oil country.
    The financial crisis on which we are living already for four years on the row and we have some more in the future, it is a payments crises, if you like, it is a mix of insolvency and illiquidity, very difficult to pay external ones because there are not enough cash -dollars- to pay financial and not financial liabilities. Government as well as the military- knew about the crises at the end of 2012, and that it might have to go for a technical default situation in the near future, because it was getting worst and worst at the time while Venezuelan pauperized at a speed only comparable with the Bolivian’s one in the seventies and eighties.
    For the domestic expenditures and debts government is paying with hyperinflation -inflation tax, knowing that without indexing salaries the pauperization was online on what they have prepared for years, that’s it, poor people will be keener to accept the “serfdom” from the State that middle class.
    I will back to this discussion this afternoon I will bring my thesis, PDVSA disappears somehow, and the new Company will take over 0under a different management model which I would compare with Russian’s GASPROM. Check back in……

  9. Is everyone here accepting as “normal” the concept of the military “owning” a commercial enterprise? It seems to me that the model the regime is currently trying to emulate is that of Burma (Myanmar), in which the military is the principle political and economic player.

    Not that anyone pays attention, but isn’t their something in the constitution that forbids the Army to play such a role?

    • The regimes in Cuba , China and Egypt ( among others) have given their military cliques a direct and important stake in the operation of some of the key sectors of their economies , such that they can, collectively , directly participate in many of its most profitable businesses.

      Its one way of binding them to the regime that grants them this benefit….. . This initiative may be a sign of how desperate the regime is in ensuring the military’s loyaty to them in a time of great peril to their political survival …..

      There are few businesses in Venezuelas which are as potentially luchrative as the oil business !!

      • These are the two main corporations, interest groups which make an agreement as rent seekers, fortunately, prices are going to be down for a while, the glut caused by this oil supply shock looks to be the biggest in decades, and as such, the fade away slowly, That will keep rent seekers at bay, fighting for any penny left. I have bad news for then, since they destroyed private sector and caused bankruptcy of all nationalized companies, They will need oil at least at 175 $ in order to settle the economy and about 10 years or more. They have to impoverish 30 millions of people very rapid. I know the will follow Cuba’s path.

  10. I would suggest to look the paper of the military in Cuba.

    As far as i know, they were given some strategic areas of the economy, this is, i think, a way for keep them aligned and happy.

    It worked for Fidel.

    • Ese es el modelo, y la alianza cívico- militar que tanto habla Maduro desde hace dos años. Los ha detenido la caída de la producción y los precios, pero no hay un individuo de mayor cultura de rent seeker que un militar.

      • In this regard, it would be a lot easy a default on sovereigns -Republic bonds- although the consequences, in the long run, are enormous, it would not cause a big harm to PDVSA assets, particularly CITGO, in spite that, it does not contribute to PDVSA cash flow by something relevant, it pays cash to PDVSA for nearly 500.000 barrels per day PDVSA ships to the remaining CITGO refineries.

        For Maduro, a default is a purely political move, perhaps similar to the Argentinian one in 2000 where after de De la Rua resignation, Duhalde and Rodriguez Saa (peronists) decide, to go on default from a purely political point of view.

        Peronists benefited politically, they won elections, and were in power for 12 years. Maduro might have thinking in some crazy game like that accordingly with his today peccary political surrenders. I am just speculating.

        A default for Venezuela would be the worst scenario since at this point Venezuela has all the rights to knock FMI’s doors, and get into an orderly bailout which I estimate on some $ 50.000 MM enough to stop the impoverishment rate that we are running from 2009 up to now. It would be criminal not to get into de multilateral including World Bank in the package so we can go to monetary reform to collect all of these inflationary bolivars and replace them with a new bolivar, with a bimetallic monetary and financial system, so we leave people to go and get of bolivars when government breaks the fiscal and monetary rules.

        We need a fiscal reform. (supply side type) following a program of massive privatization of state companies, nationalized, expropriated in the last 20 years, including CVG, CORPORLEC, CE<MENT< CANTV, MOVILNET, EDELCA, SIDOR y VENALUM, and many others, as well land and farms, return gold to Canadians, etc. We need a reformist government as Germany had in 1948 with Adenauer and Erhard.

        The future of oil industry will not be different, if we want to keep producing oil we have to disengage he oil rent from the fiscal belly bottom. We have reached the point where if he oil rent y asymmetrically divided between PDVDSA and partners and the Treasury, we will have none, the oil rent asymmetry collapsed finally, thanks god. I am not going to extend myself to this topic, but I can assure that with costs we face producing in FPO, the prices around $50 for the next 5 to 10 years, royalties should go down to 1%, taxes idem, What we need for the oil industry to engage in a valued added strategy as we need to build a huge infrastructure all over the places where oil is going to be produced and processed.

  11. It seems that Military Industrial Complexes worldwide are getting the upper hand, regardless of by what means/political slants are used to get them in power.

  12. One comment. A Chapter 11 bankruptcy, which in the case of PDVSA sounds an impossibility; should not be dramatized in such way. Yes, it is very grave, yes, it would be a major embarrassment for a government that is by now incapable of such emotion. But a Chapter 11 is not the most stringent type, a liquidation of assets; it fundamentally means the ability of the filing entity to restructure debt and re-organize the corporation. Many companies have successfully emerged from Ch. 11 bankruptcy, and are thriving today.

    There is another option; one that, surprisingly, Francisco Toro did not mention: An IPO. A partial Initial Public Offering of some “class B” stock. It could trade in Venezuela, or perhaps in the US. Of course, that would mean opening up your financials to the SEC; 10Qs, 10Ks Annual Reports, etc. (and no more shenanigans). I don’t have enough information to assess how much money an IPO could raise, but it would be significant.

    This, unfortunately, could only be possible after we have a cleaned up PDVSA, in a Venezuela when the current opposition parties win a presidential election. ‘

    …dream on…

  13. A default does not necessarily involve a Pdvsa bankrupcy in the ordinary sense of the term , Inability to pay ones debt because of a temporary lack liquidity might trigger Pdvsa falling into what in Venezuelan law is the equivalent to a Chapter 11 situation but for bankrupcy to happen it must be ascertainable that the liabilities exceed the assets of the company and thats a very difficult thing to do given Pdvsa’s very peculiar status under Venezuelan Law . Also a default simply means that certain payments have not been made which trigger a default under the companys financial agreements with its creditors . It doenst mean that other wise the company is incapable of meeting its obligations … the meaning of default is much more circumscribed and not necessarily the equivalent of a Chapter 11 situation .

    A banrupcy would force the liquidation of Pdvsa assets to pay its creditors but in Venezuela a liquidation of Pdvsa would touch of matters which concern Public Order issues of paramount importance which cannot be carried out as if Pdvsa were carrying out an ordinary commercial operation ….Pdvsa activities are deemed of public interest and such activities cant be simply interfered with by the action of any private parties , even if they are creditors whose rights are recognized under contracts ruled by foreign laws.

    The effect of a default would be felt mainly in respect of Pdvsa assets abroad and for those to happen it would not be necessary for Pdvsa to be declared in Chapter 11 under US law ( assuming that such measure is legally possible) ………the whole issue of what happens exactly to Pdvsa assets abroad is one for expert lawyers to study , Quite certain that there are bound to be many dissenting opinions on the subject…

    • In this regard, it would be a lot easy a default on sovereigns -Republic bonds- although the consequences, in the long run, are enormous, it would not cause a big harm to PDVSA assets, particularly CITGO, in spite that, it does not contribute to PDVSA cash flow by something relevant, it pays cash to PDVSA for nearly 500.000 barrels per day PDVSA ships to the remaining CITGO refineries.

      For Maduro, a default is a purely political move, perhaps similar to the Argentinian one in 2000 where after de De la Rua resignation, Duhalde and Rodriguez Saa (peronists) decide, to go on default from a purely political point of view.

      Peronists benefited politically, they won election, and were in power for 12 years. Maduro might have thought in some crazy game like that accordingly with his today peccary political surrenders. I am just speculating.

      A default for Venezuela would be the worst scenario since at this point Venezuela has all the rights to knock FMI’s doors, and get into an orderly bailout which I estimate on some $ 50.000 MM enough to stop the impoverishment rate that we are running from 2009 up to now. It would be criminal not to get into de multilateral including World Bank in the package so we can go to monetary reform to collect all of these inflationary bolivars and replace them with a new bolivar, with a bimetallic monetary and financial system, so we leave people to go and get of bolivars when government breaks the fiscal and monetary rules.

      We need a fiscal reform. (supply side type) following a program of massive privatization of state companies, nationalized, expropriated in the last 20 years, including CVG, CORPORLEC, CE<MENT< CANTV, MOVILNET, EDELCA, SIDOR y VENALUM, and many others, as well land and farms, return gold to Canadians, etc. We need a reformist government as Germany had in 1948 with Adenauer and Erhard.

      The future of oil industry will not be different if we want to keep producing oil we have to disengage oil rent from the fiscal belly bottom. We have reached the point where if he oil rent y asymmetrically divided between PDVDSA and partners and the Treasury, we will have none, the oil rent asymmetry collapsed finally, thank god. I am not going to extend myself to this topic, but I can assure that with costs we face producing in FPO, the prices around $50 for the next 5 to 10 years, royalties should go down to 1%, taxes idem, What we need for the oil industry to engage in a valued added strategy as we need to build a huge infrastructure all over the places where oil is going to be produced and processed.

  14. Hello Francisco,

    More coupon money in the account last week so very good. Again, we will revisit the topic in 6 months. Let’s see what will you come up with then. When we do arrive to August (and also to October) I expect you to not say that default will be in February 2017 (that is essentially what Barclay’s Anals Monkeys did after last year’s call – that PDVSA would have defaulted by Feb’16 – failed to materialise), at least if you want to have a bit more credibility.

    The vast majority of the people still don’t understand the problem and how structural to the country is to remain solvent.

    Yours truly,

    Venny Trader (Sir James Goldsmithsta, Perez Jimenista y Renny Ottolinista)

    P.S. Gold JV anyone? Cachinnnnnnnnnnnnnnnnnnn

Leave a Reply