Maduro Defaults on Some Bonds, Pays Others and Nobody Bats an Eye

Photo: El Impulso

April 10, 2018 marked a new chapter in the still-ongoing Venezuelan debt default saga, as the Electricidad de Caracas (ELECAR) 2018 bond payment was completely ignored by a government that has kept its head buried in the ground when it comes to the growing pile of economic issues we face.

ELECAR 2018 presents several idiosyncratic characteristics that are key in understanding  the Venezuelan debt default saga; it represents, more than any other VENZ/PDVSA bond, the “distressed debt” character, persistently trading at a lower price (and thus, at an attractive higher yield) than the rest of the curve.
The “relative value” in ELECAR ’18 enticed capital inflow, mostly from retail investors, throughout 2017. The bond was seen as “the trade of the year” by Venny Bulls, with hopes that Maduro & Co. would maintain its willingness to pay at all costs for another year.

Unfortunately for the bulls, reality knocked them out mere months later. Maduro’s infamous debt restructuring/renegotiation announcement of last November 2 cut its value in half. The market unequivocally signed that default was a done deal, and the “trade of the year” turned out to be a total dud.

ELECAR ’18 bonds were initially announced in Nov 10 by the Wilmington Trust Company, the bonds’ trustee. The government hadn’t made any of the accustomed social media postings announcing that funds for the coupon payments were transferred to the fiscal agent; it quickly replied to the trustee’s notice by stating that funds were transferred that day and the delay was triggered by “operational changes that affected transactionality.” A technical way of simply saying: “It wasn’t me”.

According to multiple market sources, the USD 27.5M coupon on ELECAR was partially received by investor accounts. It appears that custodian Euroclear has credited the amounts to final clients, while Clearstream has withheld the funds and launched a compliance investigation into the irregular payments chain.

Sources claim that the government skipped the fiscal agent mandated by the bond indenture, instead wiring payments directly to the custodians in irregular batches. There has been notorious hermetism by both custodians and government officials, beyond a leaked Clearstream update confirming the compliance inquiry, also stating it relates to Executive Order #13808 of the US Treasury Department (Aug 25, 2017, prohibiting issuance of new debt by Venezuelan entities).

A thorough scan of Twitter and other sources suggests the government has not only missed mentions of the ELECAR due date, but in general has left aside the debt default issues.

Adding confusion, news broke during the day that a USD 90M coupon payment on PDVSA 6% 22 bonds, due since Oct 28, 2017 was also withheld and, under investigation, was released to investors. The PDVSA 6% 22, also known as “hunger bonds”, are held mostly by Goldman Sachs Asset Management, and the released coupon amounts to the last debt payment serviced by the Maduro government on any of its bonds. Besides no official confirmation, a lingering question (why is PDVSA being released and ELECAR isn’t?) remains unanswered.

The official reaction has been silence.

A thorough scan of Twitter and other sources suggests the government has not only missed mentions of the ELECAR due date, but in general has left aside the debt default issues, focusing all its propaganda machine to prop up its heterodox economic policy mix:

  • DICOM FX alternate system: Last trade at VEF 60,795 per dollar. Private sector sources claim retail and corporate transactions are going smoothly, but weekly volumes are insignificant, totalling less than 2 million EUR per auction on average.
  • “Bolivar Soberano” currency redenomination: A non-event in practice until at least June.
  • Petro: The ICO ended on March 31, but the government hasn’t released results of the offering (Maduro promised on April 6 a full balance “in the coming days”). Several government officials have appeared in the press announcing the use of Petros for multiple government-related transactions, but it appears to be a purely political gesture.

Even though a debt default completely ignored by the issuer is probably the most troubling sign a bondholder could ever face, the fact that the market barely shrugged the April 10 non-event suggests investors are probably fixated in another, even more pressing payment due: PDVSA 2020s coupon, due on April 28. The circle of vultures surrounding Citgo might not be as forgiving to this payment being missed without explanation.

El 28, el 28… se viene.

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Russian-Venezuelan. A Santiaguino who left his heart in Caracas, Daniel is currently rehabbing from his addiction to High Beta and is pursuing a masters' degree in economics at Universidad Católica de Chile. Views are his own.


    • Hey ho! Correct. Calmly waiting. If GS
      got paid, we will all get paid one way or the other. I find it amusing how Hausmann, after whinging so much and creating this hunger bonds campaign is not speaking up now about GS getting paid? Why? Oh well, I guess he already accomplished his initial goal of getting the oil co sanctioned and as an IYI (intellectual-yet-idiot) is all he ever cared about in the first place (IYI’s only think about actions not consequences, much less in dynamic scenarios).

      What is clear here is that the issuer has tried to paid and the money has been blocked. Any rational person running a treasury would stop all payments until this abnormal situation (which even the most experienced people in the business would agree is a rare one) is solved, which might take years by the way. In the meantime, I would like to know what kind of solution does the Hausmann’s and Del Bufalo’s of this world propose? Foreign intervention which hasn’t worked in almost all cases it has been applied? IMF? How did that IMF bailout went for Greece by the way?

      • What’s your solution to the Venezuelan crisis man?

        You seem to just want the status-quo to prevail and keep having bonds paid out by whatever means necessary? I am not hating on the hustle, but don’t delude yourself.

  1. He is too busy giving advise to a presidential candidate on how to fix the country’s economy ….!! lets wish him all the luck …..!!

  2. “Nobody bats an eye”, indeed. Nonetheless, I did write here on CC, the very day the mysterious $90 were paid, that the only plausible explanation was Corruption, as it always is in Kleptozuela. I guesstimated that about a 10% Kickback, in cash, would have been sufficient to do the deal. As usual, Goldman Sachs happened to be the highest bidder, that’s all.

  3. Trying to get a handle on some megatrends so I can put my money where my mouth is. Imho, this is the catastrophe shaping up for Venezuela. Anyone more knowledgeable than me, please tell me I am wrong:

    1) As Daniel has pointed out before, Venezuela will lose Citgo and the guaranteed market it provides for Vz oil.

    2) With the collapse of PDVSA the rest of the Gulf Coast refiners will look elsewhere for oil.

    3) With the rebound in oil prices, TransCanada is cranking up the Keystone pipeline, and the Trump Administration is fast-tracking the permitting. Consider: Oil piped from Alberta all the way to the Gulf coast.

    4) With the rebound in oil prices, US shale production will come back, big-time.

    Emphasis on items 3) and 4). Guaranteed politically stable, reasonably priced oil, capturing Venezuelas best, cash-cow customers, at least for the next hundred years. The shame of it is, many (most?) of these refineries were designed and built specifically to handle the heavy Faja oil, and prefer it to the lighter shale oil. But Canada’s heavy Alberta oil fills the bill nicely, thank you very much. And with the pipeline, Canada can even export excess oil from the Gulf coast, right into Venezuela’s back yard. And lightened up with US shale oil, if that is what the customer wants.
    So, the big picture: We like to think Venezuela can be placed on the mend, once Chavismo is gone. But if the situation isn’t turned around and fast, it looks like Maduro and Co. are going to leave Venezuela fucked for generations to come.

  4. The best part is, Goldman has not actually received any money and people are assuming they have. Non-PDV’20 holders aren’t gonna just pretend nothing happened either if PDV’20 holders get paid. One way or another, this is getting worse.


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