The Wall Street Journal’s Anatoly Kurmanaev has great scoop on Venezuela’s ongoing trainwreck of a bond debt restructuring process. The report centers on one David Martínez, the Mexican billionaire whose firm Fintech lent the Venezuelan Central Bank $300 million, pledging a collateral of PDVSA hunger bonds with a notional value four times that amount (and who is therefore set to make a killing, or already made one, if BCV defaults on the loan). He is now working as an advisor to the government. His recommendation? To default in upcoming bond payments (which, of course, do not include payments for the PDVSA bonds he holds as collateral).

The term “conflict of interest” is an epic understatement for the kind of ethical and legal black hole Martínez is in here. This is like an evil mortuary advising you on cancer treatment options:

Billionaire distressed debt investor David Martínez urged Venezuela’s struggling government to default on its bonds days before the country’s surprise announcement to restructure its obligations.

Mr. Martínez, who made his fortune buying cheap defaulted debt and selling it after the restructuring, met in Caracas with the Venezuelan Vice President Tareck El Aissami and other members of the economic cabinet in late October, according to Venezuelan officials with direct knowledge of the matter.

The government sought Mr. Martínez’s advice as it was running out of money and overdue bond payments were piling up. Days after the meeting, President Nicolás Maduro went on state television to say he wanted to restructure the country’s debt. He appointed Mr. El Aissami, who the U.S. sanctioned for alleged drug trafficking, to lead negotiations. Mr. El Aissami denies the allegations.

Mr. Martínez has a vested interest in the outcome of debt talks. His New York-based company Fintech Advisory Inc. received bonds with a face value of $1.3 billion as a guarantee for a $300 million loan to the country in March.”

According to the piece, our VP/drug kingpin Tareck El Aissami (who is not precisely an expert on financial matters not involving white powder) is close to Martínez:

The loan allowed Venezuela to make a crucial bond payment and helped Mr. Martinez earn Mr. El Aissami’s trust, said an official who was involved in the deal. “He has a direct line to the vice president for some time now,” the official said.

Martínez is recommending the government to change PDVSA’s oil shipment scheme to avoid seizures of shipments from holdouts:

Among Mr. Martínez’s proposals to Venezuela’s debt task force, was restructuring oil contracts to give foreign trading companies legal ownership of Venezuelan oil exports, said people with knowledge of the meeting. That, he argued, would protect them from unpaid investors who may try to seize the republic’s assets. Two other people familiar with the meeting’s contents have collaborated their account.

The kicker is that due to the impossibility of the government to undertake any kind of meaningful economic reform because of the disagreements among its many cliques, they ended up on compromising on an incoherent strategy that makes no sense.

Mr. Martínez’s proposals generated a heated discussion in Venezuela’s economic cabinet, said Venezuelan officials, with the government eventually settling on a middle course of muddling through payments as it tries to strike an amicable agreement with the bondholders.

This is an absurd position. People restructure if the alternative is not getting paid. If you guarantee you’ll keep paying, why on earth would anyone agree to restructure? The government’s offer right now amounts to: “I’ll definitely pay you 100. But I think you should voluntarily agree to get paid 80, instead.” Uhhhhhmmmmmmm….

Read the whole thing, it’s a perfect encapsulation of chavismo’s inherent criminal and corrupt nature and of their fatal incompetence to avoid the looming cliff our economy is facing.

30 COMMENTS

  1. One question I’ve had for some time that I hope someone can answer is the following;
    What is the statute of limitations in the USA and in Europe for insider trading. I am assuming that much of the trading that has occurred in the past several years on Venny bonds in the days just prior to maturity has been by insiders with direct knowledge of when and whether the bonds will be paid. If so, how long does the oppo or any new government and US/European prosecutors have to to hold these people to account for their crimes?

    • For civil cases in the US for security fraud, 2 years after a reasonable person would have discovered the violation but no more than 5 years from the occurrence. In criminal cases an indictment must be filed within 6 years of the criminal act. I am not a securities law specialist but this is what my quick look produced.

  2. Time to place your bets. BSF 100,000

    Wednesday
    Thursday
    Friday
    Saturday
    any damn minute

    Winner gets a brand spanking new Million BSF Big Mac.

    • I’m going with Friday, but sometime later today would not surprise me.

      BSF 200,000 – before end of this year?

      Is it still possible to buy a traditional BigMac in Venezuela? Do the McD’s franchises just mark up their prices daily (or hourly)?

    • just an fyi re Godgiven, came across this today.

      “Por seguridad nacional, no puedo comentar las razones por las cuales una persona está o no está en la lista, pero puedo decir -porque estoy en esas reuniones- que hay razones muy poderosas tanto para incluir como para excluir a alguien de esa lista”.

      basically says, there are strong reasons for someone to be on the list or not, dealing with national security.

      source link…

      http://www.univision.com/miami/wltv/noticias/america-latina/asesor-de-trump-sobre-nuevas-sanciones-a-funcionarios-de-venezuela-estamos-afectandolos-donde-mas-les-pega

      • Thanks for linking that story. If this was a Sporanos script, this is the part where the FBI tries to get the mob bosses to turn on each other because one or more of them is an informer. I mean, the ones one the list have got to be wondering why Cabello is not on the list. What has Cabello given the US in return?

      • Interesting read waltz, though I think what he’s actually saying is, that for national security reasons, he can’t comment on the exact reasons why someone is on the list, or is not on the list.

        Learning of Godgiven Hair’s absence from these sanctions surprised me as I had long been under the assumption that he’d been sanctioned during the Obama administration. Rumors have abounded for years that his name is in a sealed indictment for major drug trafficking violations which may explain why he’s not been sanctioned officially. Can there though be any real doubt that he’s not at least No.2 on the US list of those that need to go?

        My political wet dream is to wake up one morning to the news that Seal Team 6 plucked his sorry ass out of Venezuela and he’s aboard a US military flight headed for a court date in NYC.

        Think of the shitnami that would create.

  3. Is Mr. David Martínez arranging a kick-back for Maduro and El Aissami if his bonds default?

    Maybe U.S. authorities need to watch this deal very carefully.

  4. Standard practice in oil marketing is for the oil to be sold ‘title and risk’ passing to buyer as it enters the tanker at the loading port so the property over any oil sold by Pdvsa passes to its buyers (who are not responsible for Pdvsa debts ) in Venezuela and therefore cannot be seized by Pdvsa’s creditors .
    What can be seized is the price which the buyer owes Pdvsa for the sale unless such buyers are located outside the jurisdiction of US courts and the price is payable in banks outside territories where such jurisdiction extends to .
    The true achilles heel of Pdvsa is the need to import light crude oil and products from abroad (largely from the US) to mix with local extra heavy crude and make a crude blend that can be sold ( extra heavy crude is so thick that it cant be sold without blending with ligher crudes and or products) ,
    Thus If sanctions were applied or seizures ordered to those crude and product imports then that would in effect cut Pdvsa chances of getting most of the income it now gets from its exports ,
    Much of this crude is at some stage stored in curacao and bonaire and other caribbean terminals where it can be seized by pdvsa creditors.
    However, that crude may belong not to Pdvsa but to the republic , because although not often known crude blends sold to china to pay the Chinese fund obligations are made up of extra heavy crude oil supplied by Pdvsa to the republic as royalty (making it the republics property) so that if the crude is blended in a caribbean terminal its open to seizure by the Govts creditors.
    If Pdvsa uses an intermediary to buy the crude ex loading port venezuela for onsale into the international export market pdvsa might protect the price paid for such crude from seizure by having the intermediary deposit the price in a russian or chinese bank outside the reach of US courts jurisdictions (which thru international treaties extends to most of the worlds financial system) .
    Also not known is that the economics of bringing light crude from far off middle east is highly costly and sometimes the crude itself is unsuited for blending with Venezuela extra heavy crude .

    There are literally dozens of things a creditor can do to seize crude or indebtedness owed pdvsa or the republic outside Venezuela and quite a few things too which Pdvsa or the republic can do to prevent or hinder such seizures , lawyers with a bit of imagination are going to have heaps of fun (and make a bit of money) playing these legal games …… !!

      • Tankers used to transport most Pdvsa export oil dont belong to Pdvsa but are chartered from third parties either by Pdvsa itself or its customers …..of those tankers owed by Pdvsa or its affiliates most will be mortgaged to the hilt or are used in coastwise trading ……., some will be exposed to seizure , but most oil exports are done in tankers that are not easily or profitably subject to legal seizure .

  5. Mr. Martínez has a vested interest in the outcome of debt talks. His New York-based company Fintech Advisory Inc. received bonds with a face value of $1.3 billion as a guarantee for a $300 million loan to the country in March.”

    According to the piece, our VP/drug kingpin Tareck El Aissami (who is not precisely an expert on financial matters not involving white powder) is close to Martínez:

    The loan allowed Venezuela to make a crucial bond payment and helped Mr. Martinez earn Mr. El Aissami’s trust, said an official who was involved in the deal. “He has a direct line to the vice president for some time now,” the official said.

    Martínez is recommending the government to change PDVSA’s oil shipment scheme to avoid seizures of shipments from holdouts:

    Among Mr. Martínez’s proposals to Venezuela’s debt task force, was restructuring oil contracts to give foreign trading companies legal ownership of Venezuelan oil exports, said people with knowledge of the meeting. That, he argued, would protect them from unpaid investors who may try to seize the republic’s assets.
    ———-

    First off, the Mexican “lent” the Chavistas 300 million with an interest rate – or vigorish, in Mafia loan sharking parlance (Vigorish, or “vig”, meaning the juice, or interest collected when a loan is paid back overdue) – of a cool billion dollars. talk about insane numbers, and to be sure, Martinez’s concern is in collecting his billion, so any and all suggestions will be in the service of getting paid off.

    The second bit, about restructuring oil contracts, is nothing but the old 3rd world dream of shuffling the paperwork and gaming the Gringo out loot you legally owe him, all the while backdooring millions of barrels of oil week in and week out and collecting the dough while the Gringo has to like it. Except it never works that way.

    Why? Because it’s the Gringos and the Euros financial system that you went to get the loans in the first place, and there’s no way to totally avoid that system in today’s world. Second, Chavez bilked China and Russia out of all they could get and backdooring oil to them will not result in cash money because that money is already owed both countries and is being paid off in oil. That means to “avoid seizures from holdouts,” you’d have to ship the oil to countries OUTSIDE the world financial system, and who might that be?

    Martinez is not doing anything to “help” Venezuela. He’s just scrambling around to try and make sure he gets his billion dollar pay off. If you don’t think all likely parties are not onto this, I gots real estate on the moon to sell you. Cheap, too.

    The Chavistas are only shuffling deck chairs on the Titantic. The only thing than could save them from sinking is the very thing they cannot do: Change.

    • “The only thing that could save them from sinking……” Well, you must add to the short list, what they have been praying for these last 3 years ….. $120 Oil.

  6. so Venezuela has arrested the leadership of Citgo, the president, Jose Pereira and several of its vice presidents. I was looking to determine which are citizens of Venezuela and which are citizens of the US….

    • WaPo: Venezuela arrests Citgo chief in anti-corruption dragnet.
      I am reminded of the periodic drug busts of the GOV.
      CARACAS, Venezuela — Venezuelan authorities detained the acting president of Citgo, the state-owned oil company’s U.S. subsidiary, and five other executives for their alleged involvement in a corruption scheme, officials said Tuesday.

      Jose Pereira and five Citgo vice presidents have been detained on suspicion of embezzlement stemming from a $4 billion agreement to refinance company bonds, Venezuela’s chief prosecutor Tarek William Saab said.

      According to Saab, the deal provided “unconscionable and unfavorable” terms for state oil giant PDVSA and offered Citgo itself as a guarantee on repayment without prior government approval. Mediators of the contract were purportedly eligible for a 1.5 percent payoff of the total.

      I guess it all depends on who negotiates the “ ‘unconscionable and unfavorable’ terms.” Like Lenin said, “Who?Whom?”

  7. All of a sudden Tarek William is very loudly bombarding Pdvsa managers left and right with all kind of accusations , more than ever before , one accusation after the other , they are accused of malfeasance , of ‘inflating production figures’ , of graft ., of gross corruption To me this is clearly intended to prepare public opinion for a situation where Pdvsa goes bust and the blame is put on all these crooks inside the organization , and thus protect from blame those top bosses who put them there or headed the organization during the time these crimes were being commited …….

  8. Another angle on the PVDSA arrests is to go to the mobster model, whereby ANYONE in power is all about “What’s in it for me,” in terms of personal enrichment. When the cash was flowing, there was enough to go around. Now the dough is thin, but the obsession to steal is still strong. So people are free lancing without the approval and kick-backs to the upper jefes. This might indicate a splintering of the jefes. After all, who is going to grind it out when there is nothing to steal? PVDSA was never run as a proper business to begin with. Not even. Talk to people who worked on the rigs. And they’re probably looking for scapegoats because PVDSA is not going to go bust. They already are. Problem is that the folks just arrested probably know all about the cleptoculture of Chavismo, and it will be hard to keep them quiet unless they are locked away within Venezuela and tried before military judges, all in secret. Sooner or later some will start ratting on the others.

    • Excellent observations JL. Which is why sanctions restricting PDVSA’s ability to finance its debts and purchases should prove very effective soon. PDVSA is the only cash cow these guys can rely on and as production continues to decline, everyone up the foodchain will suffer. Eventually the big fish at top will have eaten all the little ones below.

      • Looking for scapegoats within the Regime’s framework can backfire.
        People that become concerned or paranoid that they may be next, may consider staging a coup or fleeing and turning state’s evidence in an attempt to save themselves.
        A high ranking official that has not yet been sanctioned or a military officer that suspects to be the loser in any type of power play will be concerned with protecting the wealth that they have stashed outside of the country. It worked for LOD, what have they got to lose?
        The lowly enlisted soldier may be encouraged to go with a rebelling commander rather than maintaining loyalty to the regime if he feels that he may also be in line for discipline when he was “only following orders” as they claimed at Nuremberg.
        If the military sees this regime collapsing, a coup will be their only way to get amnesty.
        If Maduro and company are copying the playbook of President Xi in China as he prosecutes many longtime Communist party members for corruption, they will fail.
        Xi is acting from a position of power to strengthen his control on the economic and political system.
        Maduro is acting from a position of weakness to deflect blame and cling to power.

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