Venezuelan bond markets are on edge with this latest news from J.P. Morgan:

PDVSA has activated the 30-day grace period in the PDVSA 9% ‘21s, PDVSA 6% ‘24s and PDVSA 9.75% ‘35s. Last week, PDVSA had coupon payments amounting $539 million. As reported today by the paying agent (Citi) and Clearstream, PDVSA has only paid $135 million on the PDVSA’s 6.0% ’26 while other funds are still pending. PDVSA has not responded to our calls or emails.

PDVSA was supposed to pay a total of $539 million in interest last week for several bonds and it only paid $135 million for one of them. The balance, $404 million, is missing in action.

PDVSA is either way, way short on cash, or its finance department is run by Cantinflas. Alarmingly, it’s not entirely clear which one it is.

This is not quite Default, not with a capital-D yet anyway. Under the bond prospectus, PDVSA entered a 30-day grace period after it failed to make payments at the contractual date. It’s only if PDVSA fails to pay bondholders during this 30-day grace period that bondholders can trigger an outright Default.

Bizarrely, PDVSA’s CEO tweeted a press release to clarifies that the bonds were paid, despite the fact that bondholders say they never got the money. 

It’s like he’s saying PDVSA put the check in the mail, and the fact that it hasn’t arrived yet is your problem. He then went on to, you guessed it, blame a giant international conspiracy for his screw-up. 

Still, the Cantinflas Hypothesis can’t be dismissed.

This stunning development is consistent with the Wall Street consensus from earlier in the day that this is down to some administrative SNAFU — though a SNAFU on a hell of a scale, if that’s what it is.

That said, I’m not entirely convinced. If PDVSA made a clerical error, they would admit it and say everything is fine. But if they were scrambling for cash in a liquidity squeeze, they would also say it was a clerical error and that everything is dandy, because PDVSA would gain nothing by admitting a liquidity crunch.

So Eulogio’s story that everything’s just fine won’t convince me until bondholders actually get paid.

Still, the Cantinflas Hypothesis can’t be dismissed. There have been a number of important changes at the operational level at PDVSA, including Citbank’s decision to resign as PDVSA’s paying agent. The ongoing brain-drain is probably hitting PDVSA’s finance and accounting departments, too. It kind of boggles the mind that there may be nobody left in La Campiña able to perform routine administrative tasks like, y’know, paying debts on time…but there you go.

If PDVSA does not have the cash to make these payments, Wall Street analysts underestimated how bad PDVSA’s cashflow situation is. Before this news, most Wall Street analysts believed that if PDVSA defaults, it will be in 2017 or later. It doesn’t seem to make sense that they would’ve bent over backwards to make larger payments a few weeks ago only to sleepwalk into default last week. But who knows? So much about Venezuela doesn’t make sense these days.

At best, this is just an embarrassing blunder for PDVSA. At worst, it’s the end of the line. Either way, it’s not encouraging. Poor PDVSA 35s, who go to sleep in the worst kind of limbo: not even Eulogio’s word is backing them now.

17 COMMENTS

  1. Par for the course, poor administration, cash crunch, or both. Individuals can only withdraw Bs.10-15m daily in cash (<$5-7 at current BM rate) from banks due to insufficient physical bills to cover the November 50% increase in salaries/aguinaldos for all public/private employees, and public employees have only been paid 1/2 of their November-increased aguinaldos….

  2. Could be they have run out of cash or are playing games to strech the time in which they ultimately have to make the final disbursements or that they are bumbling and idiotic in the handling of the money or any combination of the above …..one more possible contributing factor adding to the confusion:

    Aside from the oil export money paid direct to Chinese banks , a lot of the money that used to go to Portugal is now going to far off Russian banks which are under sanctions because of frisky Mr Putins many geopolitical adventures and forays in Ukraine , Syria etc. sanctions which prevent these bank from operating directly in some of the financial clearance systems used in OECD countries which makes for delayed transfers payments etc.

    You might ask why get paid in Portugal and Russia ?? evidently because all US and most European banks are subject one way or another to the long reach of American courts or the measures of ‘enemy’ govts ……(also maybe because a bit of piggy back money can ge had by those handling the money from the Pdvsa side) .

    Understand that this same kind of operational problems have happened before but last minute desperate financial manipulations have preventing the ‘blood from reaching the river’ in the nick of time , apparently no such luck this time….

    There are some 2 billion USD payable in april of next year……..the question is …will default happen then or before we get to april ………?? bets are in if your are in a gaming mood !!

    • Certainly could be a cash crunch and/or political games — that’s the prosaic answer. The poetic answer is that they just forgot to mail the check.

  3. Del Pino is recognizing that they didn’t pay the coupon for the ’35s “se encuentra en proceso de ejecución” but they were due last Thursday, so the “disagreement is about” the ’21s and the 24’s.

  4. In strict reference to the facts, both the PDVSA press release and the payment situation reported by Muci in the article, say the same thing: some payments were made by the expected date and some payments are being processed within existing regulations including the 30-day extension. The difference is in the emphasis on the extension, which reveals a lot.

    If there is an expected date of payment, and if there is no liquidity problem, and if there are competent people doing the job, then there would not be a need for an extension. Is the delay in payment a trivial thing as the PDVSA press release would make us believe–say a clerical error–or are there systemic failures in one or more of the three iffs above?

    What is revealing to me is the scrutiny on government actions when the information exists. It could have been a clerical error, but it generated a signal on records that are public according to international law…and was picked up immediately by attentive ears. On the other hand, records that should be public according to national law, remain Venezuelan state secret. No official information from the people in charge of finance, health, public works, vital statistics, nothing. When international dispatches carry Venezuelan news, there is always a reference to the government refusing to speak or to return calls. If you are a member of the Venezuelan government, you are obliged by a vow of secrecy. In a Mexican cartel, or a family of the Cosa Nostra, or the Venezuelan government, you do not say anything to anyone about the family business.

    In a democracy the government must report to the public so that the public may judge, but that happens in a democracy which Venezuela is not.

  5. I can tell from what happened with our custodian, at least 2021’s are not paid. Wanna hear about a mess ? the custodian credited automatically on the 17th the exact amount, and yesterday without notice they debited it back. Apparently they are used to this “bona fide” coupon payments before actually receiving payment from the issuer. Not anymore for PDVSA I Guess

Leave a Reply