While all eyes are in the streets and in Maduro’s latest kamikaze move, the Venezuelan default clock keeps ticking. Even if the government manages to crush the opposition once more, that would likely solve little on the financial front in the short term. The government needs cash to keep making debt payments this year, and that’s why the two controversial TSJ rulings gave (or tried to give) Maduro powers to raise foreign money without bothering with the National Assembly.

So far, the main adjustment variable in the government’s balance sheet has been people’s stomachs: cutting imports drastically, including those of food and medicines, triggering the worst humanitarian crisis since the middle of the 19th century.

But all those kilos lost by hungry Venezuelans won’t be enough to balance the books. The government will have to dig deep, scrape the bottom of the barrel, to come up with the money they need, whether by selling its few remaining assets, or using them as collateral in loans or in repos. As you’ll see below, with the only exception of the foreign reserves, all options involve selling assets at basements prices, or pawning off at deep discounts, and on top of that, most operations would take some time to complete.

This is what’s left.

Gold

The government started selling the Central Bank’s gold reserves in the last quarter of 2014, and has so far sold around half, going from 367.6 to 187.5 tonnes. The remaining gold is worth around $7.5 bn. A good chunk of that gold — we don’t know how much — is stored in the Central Bank’s vault in Caracas, so it will have to be transported abroad to be monetized, and might have to be certified for purity. That shouldn’t take much time if the government is in a rush; a few weeks, at most, and it looks like it may already be happening.

Non-gold reserves

The Central Bank reports $10.1bn in total reserves, including gold. That leaves around $2.6bn in non-gold reserves (the exact number depends on the price of gold used by the BCV). That’s composed of cash, or liquid assets. It includes the roughly $425 million in their IMF account; what’s left after withdrawing around $2.5bn since 2015.

Money Owed by Petrocaribe Recipients

The government already cashed its receivables from Dominican Republic and Jamaica. The countries paid their outstanding debts upfront — which were supposed to be paid over 25 years — in exchange for a generous discount. Combined, these countries owed Venezuela $8.2bn, which they settled for $3.9bn. These were the only countries able to settle their debts in the short term; the rest of the debt is by small countries with no chance of raising the money to pay now.

The two big amounts outstanding, by the end of 2015, where from Nicaragua ($2.7bn) and Cuba (over $10bn). Good luck collecting that money anytime soon; and collecting in cash, not in “doctors” or beans.

Random banks

Venezuela has random stakes in banks in Uruguay, Russia and Colombia, which it could also monetize. Venezuela’s “development bank” BANDES capitalized a bankrupt Uruguayan bank over a decade ago and thus BANDES Uruguay was born. BANDES Uruguay has about $430 million in assets, $41 million in equity, and earned less than $2.5 million in 2014-2015. This puts the bank’s value at $100 million, tops.

Venezuela also owns a 49.99% non-controlling stake in Evrofinance Mosnarbank, a medium sized bank in Russia (ranked 24th by assets). The bank has about $800 million in assets, $200 million in equity and $5 million in earnings. This would value Venezuela’s stake at roughly $300 million, if we’re generous.

CITGO and other oil assets abroad

Yes, the government might still be able to sell CITGO, even after using half of its shares as collateral in a bond swap, and pawning the other half to Russia. Whether CITGO can be sold or not likely depends on the fine print in the Russian deal. If it can be sold, the value of the heavily indebted company would be nowhere near the reported $10bn the government turned down three years ago or the lowest bid it reportedly received of $7bn.

There are other, smaller oil-related assets that could be sold, such as stakes in refineries in the USA, Jamaica, Cuba, Dominican Republic and Sweden. These are small refineries: their combined capacity is less than 12% of the capacity installed in PDVSA’s three refineries in Venezuela (see page 63).

Whatever the BCV holds in bonds from PDVSA

Every now and then, the Central Bank reveals it’s holding a lot of obscure PDVSA bonds that have never made it to the market. These bonds make their way to BCV in convoluted operations, usually involving the state-owned Banco de Venezuela as a useful partner. In April, the BCV pawned off PDVSA 2022 bonds with a face value of $1.3bn to a salivating vulture fund for just $300 million in cash. As far a we know, the bank still has about $1.7bn left from that bond, that if pawned at the same rate, could raise around $400 million.

There’s also the VENZ 2036 bond with a face value of $5bn, issued in a rush by the government and sold to Banco de Venezuela before turning the National Assembly over to the opposition in late 2015. It’s a very weird bond: they used a Chinese bank for the issuance, and the bond was delivered in physical paper. That sort of thing is not used anymore in financial markets. Bonds are dematerialized; i.e, just an entry in a software database. We don’t know who’s holding that bond now, and if it’s a government agency, whether they can squeeze cash out of it. If pawned at the same rate as the PDVSA 2022, it would raise $1.15bn in cash.

These bonds make their way to BCV in convoluted operations, usually involving the state-owned Banco de Venezuela as a useful partner.

We could add here the Venezuelan bonds held by state-owned banks and PDVSA’s pension fund, which could amount to a few billion dollars, depending on which bonds are held and in what amount. Rumor has it that the government prefers to buy-back short-dated bonds on the open market, so a large chunk of their holdings likely already matured. If the regime holds long-dated bonds, it could sell them at current market prices (at deep discounts) or repo them like it did with Fintech – in both cases, a horrible deal.

Stake in oil joint-ventures

According to the law that regulates the oil sector in Venezuela — the Hydrocarbons Law — the State must hold more than 50% of the shares in oil exploration companies in the country. From the point of view of our bankrupt government, this means they can sell part of their stake in the joint-ventures where they currently hold more than 50.00001%.

In 2016, Rosneft paid $500 million to increase its stake in Petromonagas from 16% to 40%. PDVSA also offered Rosneft a 10% stake in Petropiar, where Chevron already holds 30%. PDVSA holds stakes of around 60% in several JVs: Petrocedeño, Sinovensa, Petroboscan, Petrodelta, Petrozamora, Petrocabimas, Petromiranda and Petroquiriquire, just to name a few (see page 53 here). That’s a lot of ten percents that can be sold.

Fortunately for the government, these sales don’t require congressional approval. However, changing the Law to lower the 50% requirement to sell larger stakes would require congressional approval, even if the recent TSJ rulings say it doesn’t.

The foreign partner can front all of the money to actually start pumping oil and “pay itself back” through the 51% of the JV’s cash flow that belongs to PDVSA.

PDVSA can also enter new joint ventures. This, of course, assuming PDVSA finds a foreign partner comfortable with entering a JV agreement not approved by the National Assembly (which must approve it, per the constitution) but approved by the phony Supreme Court instead.

It doesn’t matter that PDVSA is bankrupt and can’t put a cent down in the new project. The foreign partner can front all of the money to actually start pumping oil and “pay itself back” through the 51% of the JV’s cash flow that belongs to PDVSA. They have been doing that already with existing JV’s: Repsol came up with $1.2bn to boost output at their JV with PDVSA, Petroquiriquire, while PDVSA contributed with zero dollars.

But here’s the catch: Foreign partners will only enter into this kind of agreement if you sell them project equity at desperately low valuations. It’s a great big world out there of oil governments looking to raise money. And beggars can’t be choosers–especially if their JV’s aren’t even legal and the country has a rich history of expropriation.

CANTV, Electricidad de Caracas and Banco de Venezuela

Here’s where things get really, really interesting. This is where we’re heading if the Oil God doesn’t rise soon, or if China doesn’t come to the rescue of the revolution with its fat checkbook.

CANTV is by far the top telecommunications company in a country of 30 million people, with phone, mobile, internet and satellite TV services. When it was nationalized in 2007, the government paid $1.3bn to buy the shares it didn’t already own, valuing the company at around $2bn (the much maligned Cuarta República sold part of the company at a $4.7bn valuation in 1991).

Who’s going to buy these companies if they can’t later take their profits out of the country thanks to the exchange controls?

EDC, the only electric energy company serving Caracas and its 5 million inhabitants, was nationalized after the government bought out the largest shareholder with $740 million, which put the value of the company then at  $900 million. BdV was bought by the government in 2008 for $1bn. The government also owns a bunch of much smaller domestic banks.

Besides the gold, these are the most attractive assets not related to natural resource exploitation owned by the government. They could all be sold for good money. Problem is, who’s going to buy these companies if they can’t later take their profits out of the country thanks to the exchange controls? And for CANTV and EDC making profits is already a difficult proposition without increasing their government-controlled rates by a lot.

Selling these companies for a reasonable amount would require either lifting exchange and price controls, or including an exemption from the controls in the deal: the two things chavismo appears most unwilling to do.

In any country that’s not falling apart, we could include in this list of assets the airports and ports. But in Venezuela, those are not worth much to foreign investors when airlines are leaving the country, few Venezuelans can afford to travel, and the cut in imports have left Venezuela ports empty.

Guayana heavy industries

The crown jewels of the Venezuelan “basic industries” (as the heavy-industry ventures in Guayana are known) are another example of assets deeply damaged by the socialist hand. Under different conditions they would be worth a lot, but now require massive investment to turn around.

All three companies come with bloated payrolls, mountains of debt to its employees, and deteriorated assets after years of mismanagement under military officers.

Until its nationalization in 2008, steelmaker SIDOR was working at close to full capacity under private management. Then came our antihero The Expropriator and this happened. Production has dropped by 93% since the government took over the company; and even if we discount 2016 as a fluke (the factory closed for five months due to electric energy shortages), its output in 2015 was still 75% below its peak. Things are looking equally bleak at the aluminum smelters Alcasa and Venalum. A year ago, Alcasa was working at 15% capacity, and Venalum at 21%. All three companies come with bloated payrolls, mountains of debt to its employees, and deteriorated assets after years of mismanagement under military officers.

If you’re wondering how much they can get from SIDOR, the government paid the previous owners $1.97bn for their 59.7% stake in the company, thus valuing the company at $3.3bn. But that was for a well-functioning company, not the carcass of one.

If you’re keeping score, in this short article we’ve detailed how the government spent $5bn nationalizing four companies between 2007 and 2008. Now they might need to sell them, but won’t raise nearly as much.

Mining rights

The government has been trying to raise fund from selling mining rights along the Arco Minero, a mineral-rich area in the south of the country. They already inked a deal with gold-mining company Gold Reserve, which not long ago was kicking the government’s butt in US courts for compensation for the 2008 expropriation of their assets. Nine years after kicking them out, the government is giving them back the same mines, and more.

It’s not clear if the money put up front by Gold Reserve will be spent exclusively in the project, or if Venezuela might get some cash up front that can be used to pay foreign debt. So far, the Gold Reserve deal appears to be the only significant project to come to fruition from the government’s efforts squeeze cash out of the Arco Minero.

Savings in dollars held by the government

Just kidding. There’s nothing left.

Did we miss something?

Can you think of an asset we forgot to include? That’s what the Comment Section is for!

27 COMMENTS

  1. There is the millions in private bank accounts that the regime’s people have taken over the years in payoffs & curription. I don’t see them ever giving it back though, even to save their own skin…

  2. It’s in these situations when I am guessing countries start to lose sovereignty. I can see the Dry Coast conflict with Colombia and the Guyana issue solved for a loan of a couple of billions.

    In the case of the Heavy Industries, Brazil could offer to buy them and invest heavily in that area. But of course it would not do it with the current controls and legal structure. What they would require is to set a special administrative area which has boundaries with Brazil where they have full rights to import and export everything they need, and administrative issues are settled via Brazil’s legal system. Later they could claim that their security needs are not meet and they need to enter their own (non-military) security forces, these of course in exchange for another loan.
    How much would it cost for Maduro to accept such a proposition? $20Bn? It al ldepends onhow desperate they are.

  3. In other words, it is possible the regime will make it out of 2017 without a default, but 2018, although not as critical as these past few years, will be hairy. Default will come in 2019 or 2020 at latest. Staving it off until then would leave the government penniless and the country torn apart and dearth of anyone smart enough to leave it.

    An American Somalia, in short.

  4. As for the non-liquid assets who in his right mind would buy them because the next government in power could expropriate them. The factories, the mining rights, the communications entity, and the electric company are all the type of national assets whose sale would cause a meltdown among socialists of all stripes, chavista and democratic socialists. I think Maduro has less he can sell than your list indicates.

  5. If you could put a big clamp or vise around the heads of the people that run the government and start squeezing their heads until they confess to where the billions of Dollars that they stole are located, you could begin the Venezuelan recovery with real money.
    The US and I’m sure other countries are working to recover funds that have been illegally taken from the Venezuelan people.
    As of the last news reports, this money is only in the hundreds of millions. No where near the totals that have been stolen.
    After so many years I doubt 10% of the stolen funds will be recovered.
    The only other thing to do is to make sure these people are never free to enjoy their ill gotten gains.

  6. I am sure that you should be able to interest some collectivo into paying good cash for the Puente General Rafael Urdaneta in order to charge tolls and do other creative activities 🙁

  7. You mentioned that ‘las industrias basicas’ are run by military men.

    One of the arguments I posted yesterday was that Venezuelan Military are weak on Latin American history. In the 70s and 80s most of the countries there were run by military. It was a disaster, yet the Venezuelan military seems hell bent on trying their hand at it.

    Having interacted with Venezuelan military there is this deep fascist idiosyncrasy. They like to think of themselves superior to civilians, certainly more macho. So with this cognitive bias they are sure they will FIX the country after those klutzy civilians.

    Now Maduro is yielding more and more power and resources to them which means they will be faithful thugs to the regime so only a real economic disaster that would affect even the well being of the armed forces will make the government fall. The street protest are effective body blows to soften your enemy but will not provide the knockout blow.

    As I have painfully realized by a conversations with some military no-longer-friend, empathy for the plight of Venezuela from the military goons is wishful thinking.

  8. Excellent summary from hard-to-get sources. The sad thing is the Govt. might make it through 2017 financially, meaning the slaughter/maiming of innocents will only get worse, without outside intervention.

    • Net, that is so true. While the Venezuelan military prior to 2000 never fought a war, they were still disciplined and had leaders with ethics and morals. Today’s Venezuelan generals are corrupt to the core and could never win a war even against Guiana.

  9. Raise gas prices.. then again, they would steal the profits.

    Problem is that if/when the MUD has power, what can they do? What will a Capriles or MCM or Leopoldo do with this financial and economic disaster? As for loans at FMI or elsewhere? The damage is done. Venezuela is screwed for a loooooooong time. Even the oil was given to the Chinese, and they don’t produce anything else,, nothing at ALL.

    Fixing destroyed companies like Sidor would take years/decades. And let’s not dream that any MUD government won’t have corruption, Venezuela has always been highly corrupt, way before Chavismo. So the bleeding will continue after Chavismo, less, but still a lot.

    The one thing that will be great is accepting international humanitarian aid, food and medicine. Some billionaires might also five away a few billions in aid. But the stolen trillions will never be found. Ask Gabrielita Chavez to return her 4 stolen billion.. good luck finding that.

    So financially and economically.. too much damage, as this article details, the debts are too high, oil prices too low plus its now Chinese oil, Venezuela will remain in a deep crisis for decades. Crime will remain very high, most of us who left will not return. Tourism will not improve either, tourists know it’s too dangerous.

    Note that this extensive article details the horrible, numerous problems, offering no foreseeable solutions. That’s because there are very few, only partial, and would take decades.

    • Actually given Venezuela oil reserves, many of the problems can be solved rather fast under a competent administration.

      Once a free market economy is established, the shortages will disappear in an instant.
      Inflation can be brought down overnight by Dollarizing the economy, this in turn helps a lot to stabilize the economy.
      Corruption is not a Venezuelan innate problem but a Managerial one, ask the Credit Cards companies operating around the world. Adopt the Transparency International recommendations and the corruption problem can be quickly mitigated.
      If most of the public money transaction are transparent, there would be little opportunity to steal.

      PDVSA would have to be eliminated and recreated later. Meanwhile oil production can be subcontracted to private oil companies.

      Crime would take more time to fight but a big investment in local police and the penal system would be of the utmost importance to restore peace.

      Is in that climate of new opportunities and renovated optimism that investors and Venezuelans abroad would come back generating jobs and prosperity.
      After Chavismo the only way to go is UP !

      • The sad thing is that the world is rapidly moving to a point where they will abandon fossil fuels. Venezuela might find itself sitting on an ocean of oil that nobody wants, especially as it is expensive to extract and difficult to refine.

        I say this as a long time worker in the oil industry. Thankfully not long till retirement now

        • I beg to differ. Oil consumption is growing rapidly as plastics and synthetics in daily goods grows by leaps and bounds. Polymers and coatings relies heavily on oil refinement.

          Nearly all global growth in oil consumption over last year was due to more products and not fuel.

          People are driving and flying more than ever. Fuel oil consumption is not going down, folks just have more efficient vehicles they drive more often.

    • I am sure cold Canada would make a great offer for Isla Margarita! Maybe a 100 years Hong Kong type lease?

        • Given the condition Margarita is in and the absolute certainty that any investment will be expropriated sooner-or-later…..max I would give for a 100 year lease would be $ 1 CDN per annum

          • The island would be booming! 1CDN per annum with such captive tourism as Canadians? No it would be worth much more. Canadian administration during the lease of course. How many in Hong Kong were happy when returned to China?

  10. I still remember when Chavez talked about the ‘optimal level of reserves’. Look at this quote: “-Hay que ponerle un tope a las reservas internacionales, nosotros no podemos seguir acumulando millones y millones de dólares, que si hay que reformar alguna ley hagámoslo…Venezuela con 18 mil o 20  mil millones de dólares en reserva va que chuta…” (source: Aló Presidente. No. 218, April 10, 2005). And still there are people who think he did it very well.

  11. If they get through with this Constitucional Assembly, international community should start more or less peacefull guarimba movement at airport counters with holyday flights to Cuba.

    Enough is enough.

  12. There are three resource categories that have not been mentioned (one is mentioned in the comments).

    First, chavismo could turn on some of its “friends”, and extort some of their loot from them. One might see the Madurista faction eating the Cabellistas. (Side note: just watched a Maigret episode on TV (dramatizations of France’s #1 mystery writer, set in the 1950s. One of the main characters was “Dieudonné Pape”.)

    Second, expanded narcotrafficing, and/or demanding a large cut from the current narcos, who I gather are mostly FANB generals. There’s billions in cash flow to be had there.

    Third, ransoming Venezuelans known to have relatives overseas with some money. Ceaucescu raised $billions for Romania by ransoming Romania’s ethnic Germans (the Siebenburg Saxons, who settled in Transylvania in the 1200s) to West Germany, i.e. they got to emigrate for several $thousand each. There’s no foreign government that will pay for Venezuelans, but a lot of expats who could be shaken down – especially if it is hinted that their relatives still in the country may be arrested and thrown in prison, or targeted by colectivos. Or there could be a pseudo-legal program of arrest, and to get out post bail which allows emigration. This may seem too disgusting even for chavismo, but once they define all emigrés as traitors and thieves, they can rationalize it.

  13. An accurate cash flow analysis for the Vz government over the last eighteen years will show more than USD one trillion unaccounted for. Then add in the narco revenues.

    Get to the right people and there’s plenty of money to fix everything.

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