Yesterday, the grace period over the last coupon of Electricidad de Caracas bonds (ELECAR 8,5% 2018) lapsed. The paying agent had seen no money, so the bonds were declared in default by the trustee, Wilmington Trust, as of this morning.

“This is it”, many market agents and journalists said.

“R.I.P. Elecar”, others whispered (including me).

Even over at Zero Hedge, the headline was “Venezuela Officially Declared In Default,” which was definitely the wrong thing to say in the beginning because there’s no cross-default between Elecar and any other bonds — Venezuela bonds or PDVSA or anything else. Either way, a default on the ELECAR 18s was widely expected by the market ever since Maduro starred in Empanada-Gate, the most tropicalmierda declaration of a restructuring/reprofiling/default/credit-soap-opera of all time.

It’s a kind of inside information festival out there right now.Investors spent all week scrambling to position themselves for the following scenario: the government would decide to pay PDVSA bonds in arrears (as late as legally viable), and sacrifice ELECAR. The next question was if they were going to do the same with Sovereign bonds next week.

The bonds had plummeted to historic lows following Maduro’s non-default default announcement eight days ago. After trading in 60-80 territory for the last twelve months, ELECAR fell off a cliff as soon as Maduro spoke. The climax of ELECAR-geddon came this morning as the default notice started to make the rounds in the market. Broker-dealers aggressively lowered their bids (I heard somebody was bidding  just 1 cent on the dollar, and TRACE reported some 8 million face value in several trades below 25 cents.) The vultures were ready to jump.

And then, just after lunch, this:

“Funds corresponding to the payment of EDC2018 (8,5% Notes due 2018) were transferred on November 08th. Operational issues affected the payment.”

Are you kidding me? Seriously?

Are they telling us they paid two days ago, and decided to tell us about it only today, after the notice of default by the trustee?

Why didn’t they say anything on Wednesday? What the shit?

The trouble isn’t just all the chaos the government causes by not paying or paying late. The problem is also that their communications are so opaque markets don’t know what to think. Administrative chaos + chavista opacity make for a horribly dangerous “strategy” that could wind up setting off a messy default and the harshest legal battle of our country’s history.

What’s for sure is that the more opaque the market is, the bigger the profit opportunities for the select few with an inside line to what the government plans to do. It’s a kind of inside information festival out there right now. While normal bondholders sweat and normal Venezuelans go hungry, people in the know must be making off like bandits.

So yeah, Quico. I’ll go foroption A.

Diosdado just got a new yacht.

27 COMMENTS

  1. Javier, if acceleration occurs, there’s no way PDVSA pays its debts. Consecuence is Venezuela will be cut off on credit and financial mechanism. Right? The “profits” from oil will also be retained by court orders and PDVSA creditors (although a good percentage of such profits has already been paid to buyers).

    However, the rojo rojotos have these few little businesses on the side called narcotrafico and counterfited food and medicine.

    Since they cannot go anywhere, I see Maduro & Cia., holding their power like a five year old holding his new toy on Christmas Day. Even when there’s no money from PDVSA.

    So

    How will this financial chaos will help their “downfall”? They will not let anyone take their places.They will not surrender. No negotiations will get them to step down.

    And, a huge IF here, they accept to abandon the ship, the debt is gonna be there, the default happened. How will the new government deal with this shit?

    Sadly the only real fact here is we are thoroughly fucked.

  2. According to Dolar Today, the exchange rate is now over 52000 Bs to the USD. Many Aporea posters, while clearly Chavistas who signal their worship of their Eternal Commander, are losing their minds due to the inflation.

    • I’m amazed there are chavistas who even understand what inflation is, or believe it’s real. Most seem to think it’s something invented by the opposition.

      It’s almost impossible to manage a business with this inflation rate. I can hardly imagine what it will be like next year.

        • There ya have it. If it was just some guy writing bullshit, it would be one thing. Instead it’s a guy writing bullshit and he, and obviously most chavistas, actually believe what he’s writing.

          1) inflación inducida

          2) guerra económica

          3) dólar today

          4) manos misteriosas que se esconden en la oscuridad trastocan el valor del dólar

          5) mafias tan poderosas

          Nothing this government has ever done, or is doing now, is the cause. Never.
          It’s always someone else’s fault.

          I’ve said often, if after almost 20 years of the chavistas in complete control of this country, the opposition can still muster this kind of sabatoge, imagine what they could accomplish if they were in control.

          • But then there are posts like this:
            https://www.aporrea.org/economia/a255083.html

            Aporrea must not have any editor that previews/approves posts based on ideological purity. And plenty of these posters are not happy with the new “hate” laws. hey seem to think you can have a revolution and still have freedom of speech, at least as long as your criticisms and well-intended to improve socialism and not right wing terror like the protesters back before “the CNE created peace”.

            Sort of like true believer commies sent to the gulag by Stalin going to their demise thinking its just a big misunderstanding.

          • And this post must have been submitted by The Onion:

            “Venezuela, land of the Liberator Simón Bolívar and of the Supreme Commander Hugo Rafael Chávez Frías, praises the dignity and humanistic vocation of the noble Palestinian people, as well as the memory and legacy of Yasser Arafat, whom our Supreme Commander approached for his unblemished human values , fully in harmony with the Bolivarian and revolutionary doctrine of the Venezuelan people.”

            https://www.aporrea.org/actualidad/n317109.html

  3. Man, another fantastic article explaining this complicated money stuff to financial idiots like me. The second such exemplary article in two or so days.

    Seriously, the nuances of the fiscal manipulation going on isn’t known to nor understood by 99% of people claiming to know “what is going in Venezuela,” including me.

    Fuck, not a report on this stuff ANYWHERE, except here on CC.

  4. How many yatchs can a prisoner have in an Arizona maximun security prison?
    BTW, Ira, one analyst who reports almost daily on this issue is Russ Dallen at the Latin American Herald Tribune or in his twitter

  5. Many of the projections for Venezuelan default were using the 2.5 mmbd production numbers.
    The following is excerpted from the Latin American Herald Tribune.

    “Venezuela reported to OPEC — where Venezuela is a founding member — that its production was 2.085 million barrels per day in September 2017. According to OPEC’s calculations, Venezuela had average production of just 1.89 million barrels per day in September.

    Under the November 30 OPEC agreement, Venezuela agreed to cut its production by 95,000 bpd to 1.972 million bpd beginning in January.”

    As the commitments to China, Russia and other countries continue to be met in regards to cheap oil, less an less oil is available to sell to anyone. It really doesn’t matter if Russia takes delivery of oil that used to be earmarked for US refineries. The oil production is falling quicker than many analysts forecast.
    Venezuela has the highest lift costs of any OPEC member and some of the lowest value crude. As production declines, lift costs per barrel will skyrocket. Eventually lift costs will pass money from sales.
    The last time I researched PDVSA production costs were around $17 before the $10 tax.
    Venezuela was only selling about 50% of production due to the other commitments.
    This made lift costs on the barrels that were sold on the market for cash close to $35.
    Reductions in Capital spending at maintenance allowed the regime to see hard currency for the production.
    The reduced CAPEX and maintenance is quickly reducing the production rate. If the oil that has already been committed to aid and debt reduction remains constant, the realized money after sale of the remaining oil drops quickly.
    Venezuela is coming close to having only 1/3 of production available for sale. This brings the lift costs to around $50 for every barrel that can be monetized. There is no government tax in this assumption.
    There really, truly, definitely is no money left!!
    Schrödinger’s cat was either dead when it when in the box or placed in a box with no bottom and fell to its death. This cat can not land on its feet.

    • Nice summary of PDVSA lift costs John. And one can bet that whatever number of BOPD that the regime is reporting, in actuality it’s something less, probably considerably less.

      • Hi MRbio
        I was surprised to see the OPEC estimate below the 2 million barrel per day figure.
        Almost 10% below the PDVSA figures. That is a huge difference.
        The only thing that the PDVSA seems to be monetizing is deferred maintenance.
        Trying to find reliable data from PDVSA is challenging.
        The secrecy around oil production numbers is going to make it impossible to restructure the debt. There are no projections, other than an expected increase in oil prices that the regime can cite.
        The increased prices mean nothing when the regime is faced with falling production.
        The other numbers that I don’t know is how much light crude and finished petroleum products are being imported. The light crude that they need to dilute the Venezuelan crude would be a very good indicator of actual production.
        Venezuela is the only only OPEC member that could raise production and remain below the OPEC reduced production targets.
        Fixed overhead divided by decreased production is going to mean that lift costs per barrel will continue to increase.
        Another thing to consider is the crude that has not been initially processed to remove impurities. What do you do with a tanker full of crude that is such poor quality that the refinery refuses to accept it? It isn’t something that you can put back in the ground.
        Venezuelan heavy crude sell for around $10 less than WTI. I have no idea how much the rejected crude will bring and where it would be taken for processing.
        Any way that you look at it, the corrupt regime insiders will be fighting over an ever shrinking pie. Eventually they will not be able to buy the soldier’s loyalty or a schism will occur between different factions of the military as competing generals fight over the scraps.

        • John, spoke with Vicky today. She’ll be forwarding the info you need later today or tomorrow. She’s waiting on me. I’m waiting on the step son. Thanks again my friend.

        • John, would that the reduced oil income be decisive, but, using only a 10% transit fee, narco income easily equals total Ven. yearly oil income, and there’s additional substantial income from gasoline/price-controlled foodstuffs over-the-borders contraband, gold/diamond mining in the Arco Minero, commissions from imported foodstuffs/military equipment/ oil well equipment, payoffs for Govt. contracts, profits from subsidized $ scams, etc., etc., etc…..

  6. We knew the oil jig would eventually be up and that the political fallout would be considerable. Great to hear John chart out the bumbling process by which the oil cow is quickly going dry. I had a relative doing an internship on a Venny rig and they saw a total lack of safety and procedural protocols with the plant jefes pushing the rig, flaminig and farting, for every last ounce of black gold because they more they pumped, the bigger the bonus they got. So it’s not just upkeep that’s killing production, but maniacs running the rigs into the sabana. Going to get hairy if sanctions and restructing further drains the oil cow because they would also cut subsidized food and medicine, and the country is already VERY short on both. When the masses get hungry in big numbers, and granny dies for the lack of antibiotics of an IV or something simple, the game might change in a hurry.

  7. Until about a week ago there were those that argued PDVSA was a viable enterprise. Now the word is out that they are tits up. No supplier or contractor or service company will do business with a bankrupt organization unless paid in advance and after the check clears. A company (?) like PDVSA simply cannot operate without suppliers and contractors. The death spiral is accelerating.

    • I drove by a remote wellsite yesterday and saw a portable well test separator and a portable flare operating. I don’t think it was PDVSA equipment though I could be mistaken. I was so tempted to stop and visit and find out if it was a third party operation and pump them for information but was running late and decided against it.

      Even if one is charging 100% in bolivares for a service, I bet the wait time to get paid makes it unprofitable with the inflation factor.

  8. There is an article on DolarToday regarding declining oil production.
    This is an interesting the production estimates for 2018 are higher in the article than the numbers hat OPEC is currently reporting.

    This caught my attention at the end of the article.

    “A breach could complicate US export, blending and marketing operations. UU They will probably face interruption events in case the creditors try to confiscate some charges, “he said by email. “But since almost two-thirds of the country’s production is controlled by Chinese and Russian companies, that will ensure that production continues, to pay its own debt.”

    Can someone explain that comment? I can understand that 2/3 of production may be committed to debt service with Russia and China. Are Russian and Chinese firms controlling 2/3 of the oil infrastructure?

  9. If I understand this correctly, you assume the “guiso” is in dumping the price with a default warning so you can buy it so cheap that when it becomes a false alarm (“no no, we paid this time, sure”) you will earn money in the rebound, right?

    Bit risky to assume there is going to be a rebound, though, although I guess any rebound works for making a quick buck.

    Opens a lot of possibiility in “consolidation” of the debt by ensuring you bought it back at bargain prices.

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