The weeks in the run-up to bond principal repayments are always volatile in the Venezuelan bond market. For an issuer under such a big question mark, these big amortizations are the center of attention for dedicated investors. Uncertainty over capacity to pay and intrigues over actual willingness to honor debts feed an unstoppable rumor mill and generate a sizeable pick-up in trading activity ahead of the big dates.

Now that the political impasse was turned up to eleven with the unprecedented Supreme Tribunal decision to take over the functions of the National Assembly, a whole raft of new unknowns entered into an already pretty crowded stage.

In the last couple of weeks, market watchers have been increasingly focused on the repayment of PDVSA bonds due in April 12th (to the tune of USD 2,057mm plus interest) and have gotten nervous due to the recent fall in oil prices and several worrisome signs of the company’s operational difficulties.

The payment itself was a good reason to be nervous on Wednesday. But panic set in on Friday among the Venny community. Now that the political impasse was turned up to eleven with the unprecedented Supreme Tribunal decision to take over the functions of the National Assembly, a whole raft of new unknowns entered into an already pretty crowded stage.

What is the Maduro administration looking for with this reckless play?

Does this have to do with the Government’s apparent difficulties in sourcing external financing, given the National Assembly’s determination to inform any potential source of financing that any new agreement signed without its consent is illegal?

Is the balance of powers within the government shifting towards a group with a different view regarding external debt?

Will the external backlash force Maduro & Co. to backtrack on the AN invalidation?

Why are they doing this right before such a sensible moment for the country’s external finances?

You know what happens when events are inflamed to a point where the whole situación país gets out of control? Blood runs on the Street. Bond trading was already pretty heavy throughout the past few days, but nothing like Friday’s session. What a crazy day! Quick recap of just the first few hours, as told by my day’s chat log:

08:15 am. Traders greet each other with a ‘good morning’.. Bonds were already down over -1pt. Venny is front page news for the WSJ and FT over the TSJ power grab. Analysts sent reaction pieces discussing implications for the Govt in terms of internal and/or external backlash. Some callous analysts are dismissing the noise and calling to ‘buy the dip’.

09:00 am. The avalanche of selling continues. Bonds are now -2pts. Nobody seems willing to bid paper and the broker-dealers are updating their indicative levels lower and lower. Se prendió esta mierda.

09:30 am. Climax of panic-selling. Some bonds trade as low as -4.5pts on the day. Everybody’s worried and scrambling to get out of the risk. Shoot first, ask questions later.

10:00 am. Some demand finally seen in the market and bonds start to firm up. PDVSA ‘low-dollar value’ bonds, which traded as low as a 33-handle, start to get bid up.

11:00 am. The market is starting to change its tone. Reports of street protests in Caracas and the surprising denouncement of a rupture in the constitutional thread by Luisa Ortega Díaz seem to be changing market sentiment somewhat. Bonds start to inch higher and volumes pick up.

01:00pm After several hectic hours of trading flows being to stabilize. It seems as everybody has already squared their positions ahead of the weekend. An uncanny sense of calmness returns to the market, although bonds are set to close session -2 to -3pts lower on the day, sometimes not off the lows..

God only knows what would’ve happened if that story had hit during trading hours.

Mind you, that was just the first few hours, but it gives you a sense of the kind of day we had. People were nervous.

The rest of the afternoon was similarly mad. But it was a Friday, so most Wall St shops were closed by 3pm.

At 6:12 p.m., this explosive Reuters’ report quoting unnamed government sources saying PDVSA is negotiating financial help from Rosneft to pay the April maturities came out. God only knows what would’ve happened if that story had hit during trading hours.

I thought I’d have a bit of time to digest that report make sense of what happened. But this is Venezuela: things don’t stop.

Late Friday night, the never-before-heard-of Defense Council of the Nation met to try to solve the “impasse” between the Prosecutor General and the Tribunal. At the meeting, which neither the Prosecutor General nor the head of the National Assembly attended, Maduro urged the Supreme court to review Decisions 155 (related to the opposition’s request for applying the OAS’s Democratic Charter, which the TSJ sought to retaliate by stripping MPs from their parliamentary immunity) and 156 (which they used to give the president the authority to sign agreements in the context of the Hydrocarbons Law without parliamentary approval, and themselves the power to act as a National Assembly ‘de mentirita’.) .

And, this morning —surprise!— the Tribunal withdrew the most incendiary aspects of Article 156 granting itself all of the Assembly’s powers but kept the provisions allowing the president to unilaterally alter the Hydrocarbons Law even though he has no enabling powers to do so.

Worst. April’s Fools. Ever.

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  1. This is a cut and paste of a comment I made early this morning :

    “Announced by Maduro around midnight : The regime has decided to backtrack and had the TSJ rectify their decisions taking out the part which 1) deprived assembly members of their inmunity and 2) allowed the TSJ to take over the NA functions under the Constitution (just as Ramos Allup predicted last night) . Very revealingly they left in the part where Maduro could change the Law of Hydrocarbons and create mixed oil companies without the prior approval of the NA.”
    “My own take on the matter : This 18 of april Pdvsa must pay 2,5 billion US$ to its bondholders or be declared in default , by last week it was more than a billion dollars short of raising the money , they have however made a deal with a Russian Oil Company whereby the latter grant Pdvsa a loan (enough to cover the shorfall) and in return the Russians get a higher participation in certain oil fields , because the oil deal requires NA approval under the Hydrocarbons Law they need some legal support to doing the deal without such approval or risk the deal not getting done .”

    Except for being somewhat off on the exact date and amount to be paid the above reflects Daniels much better informed understanding of what caused the TSJ to issue the decisions that are now been partially retracted ……..!! Pdvsa is very short of money and would not manage to make the bond payments but for the deal it struck with Rosnef…..provided of course the deal could legally pass without the approval of the NA. . The Pdvsa financial situation is not going to get better and the next large set of payments are due next october ……

    The Russians should take note of the ease with which TSJ decisions are retracted and changed at Maduros command , revealing how fragile their legal cover is ……!! Same notice should be taken by other would be creditors …!!

  2. 156 (which they used to give the president the authority to sign agreements in the context of the Hydrocarbons Law without parliamentary approval, and themselves the power to act as a National Assembly ‘de mentirita’

    So Maduro backtracks and allows the NA to be recognized while the Chavistas pay no attention to what they say, while drafting a lay (156) that allows Maduro to deal with the real issue – that fact that Venezuela has almost no liquid assets left. But now he can squeeze the Ruskies for a few billion by giving away oil futures. And just what leverage does anyone have to stop this? Getting enchanted by the restoration of the NA is just a smokescreen since they exercise ZERO influence on national policy. The real issue is that Maduro is willing to go as far into debt as needed to remain in power, mortgaging off the nation’s future to do so.

    Wonder what would happen if the NA promised the Russians that any agreement not approved by the assembly would not be recognized once the Chavistas fall, as they eventually must. Meanwhile Maduro keeps on begging the world to keep him in power. Jesu Christo, world politics really is a ship of fools.

  3. Daniel, Can you find out who gets in and out of the Bonds when these government manufactured crisis scrips are in play ? Since Chavez they know how to manipulate the market for their political benefit, but since a while a go they are making personal profits during these market roller coasters.

    Wouldn’t that be a great story ?

  4. The bonds are a liability for the regime because they can cause a situation where the whole very frail financial structure on which it stands can collapse if they are not paid on time …..but they represent no advantage to the regime because by paying them they get no additional moneys whatsoever ….so dont quite get why people losing or making money on their trade should concern us the least bit , the only thing that matters to us is how the regime sacrifices our welfare just to stay solvent before this group of creditors ( there are many others which are never mentioned and who are not getting paid) ….

    • Well a situation of distress causes them to go down, they could basically be buying the very same debt they issued, problem is “them”, who knows?

      • That is of course possible , you do things that bring down the value of the bonds and then benefit from buying them yourself on the cheap , PROVIDED you have the money to purchase them , but not when (as happens to be the current case) you are FLAT BROKE.

  5. The revised version doesn’t even attempt to pretend it has anything to do with the Constitution. Either the original version was right and the Constitution required their original decision, or it didn’t require it.

    If it didn’t (as they now admit), where in the Constitution is this exception for hydrocarbons?

  6. The incident (which consequences still ongoing) shows glaringly how the constitution doenst mean anything to the TSJ (they can change their interpretation of it with absolute caprice) and that the TSJ is totally subordinate to Maduro who can command them to take back a passed sentence at 12 midnight and have it changed by the TSJ early the following morning … short that there is no independence of powers nor rule of law in Venezuela, that the regime is a flagrant Dictatorship that has the TSJ act at its convenience !! Ortegas purported show of ‘independence’ has every look of having being a concocted mise en scene to help Maduro save face by backtracking on a bungled attempt at formalizing the NA defenestration without letting on that he had to do it in response to the explosion of condemnation that greeted its announcement……. He then could make it look as if he were the magnificent compositeur who settled an impasse between Ortegas Fiscalia and the TSJ without having to humiliate himself by appearing as the bungling fool who went too far and ahd had to backtrack when faced with the fierce opposition of the regimes many enemies.


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