Venezuela Weekly Report

PDVSA: Keeping the Promise Despite the Rumors

November 3, 2017BancTrust & Co. Research Team
  • Once more, PDVSA proved its willingness and, more importantly, its capacity to pay as they honored today the scheduled amortization of the PDV’20 for an amount of USD841.88mn
  • Uncertainty before the payment generated mixed results on both PDVSA and VENZ curves. We note the influence of the PDV’20 payment on the performance of the soon-to-mature PDV’17.
  • On the local front, former MinFin Ramon Lobo was designated as the new President of the Central Bank, while his successor at the MOF will be PDVSA CFO, Simon Zerpa

This week has not been an easy one for either PDVSA or VENZ curves amid the uncertainty of whether PDVSA was to make payment corresponding to the first amortization of the PDV’20 for USD842mn. After the nervousness that hit the market just the day before, and doubts on how the state oil company was going to proceed earlier this morning, the state-owned oil company reported before midday that they had made the payment. In the official communiqué, they remarked the achievement of making payment despite the difficulties imposed by the international financial blockade, a direct consequence of US sanctions driven by US President Donald Trump.

Additionally, they informed that the money had been transferred to the accounts of US-based bank J.P. Morgan; however, they did not mention anything on the interest payment that it was also due for today (USD143.1mn). In that last matter, we previously anticipated that the company would prioritize principal payments and that it was going to use the 30-day grace period that rules over the coupons, especially when a bigger payment is yet to come next week with the PDV’17N.

Venezuelan fixed income performance this week, in general, can be defined as reactive as the market changed its appreciation from positive to negative, and backwards, within hours responding to rumors; and for us, that is the key on what we saw this week: rumors.

As we take a look on the PDV’17N, maturing next Thursday for a total of USD1,170mn between principal and interest, we notice a high influence from this week’s expectations. In this regard, today’s payment served to prove that the state-owned oil company effectively has the resources to pay and maintained its willingness intact; the reason why recent statements made by former PDVSA CEO Rafael Ramirez, and even by President Maduro himself, should not be disregarded.

Venezuela Weekly Report

PDVSA’s Commissioner Report with a Little Gift

October 27, 2017BancTrust & Co. Research Team
  • We addressed 2016’s Report of the Commissioner of PDVSA and took a look at its recommendations as well as other significant highlights, like CITGO’s financial statements
  • The opposition will contest the results of the regional elections after presenting evidence of tampering in some states. Meanwhile, the government could seek to bring forward the date of both municipal and (perhaps) presidential elections
  • In spite of the wave of negative sentiment reflected in the performance of the sovereign and PDVSA curves, we see upcoming debt payments being honored

The Report of the Commissioner of PDVSA for 2016 shows that Commissioner Silvestre Molero recommended the Shareholders’ Meeting to approve the financial statements provided by the state-owned oil company and audited by KPMG. We decided to take a look at the issues and highlights that the Commissioner included on it, and first will be the turn of the operational and financial results of CITGO.

According to the figures provided, CITGO Holding, Inc. registered sales for USD19.9bn and sales costs for USD19.2bn. Nonetheless, the operational expenses (USD570mn) and taxes (USD33mn) make the earnings drop to barely USD87mn. The acquisition of crude oil totaled USD10.39bn, falling 14.72% y-o-y thanks to lower oil prices and a reduction of 3.75% y-o-y in the volume (totaling 692mbpd). Disentangling the latter, PDVSA supplied only 28% of the crude received by CITGO in 2016, while 63% of the crude oil requirements of the subsidiary is acquired through future contracts and the rest through the spot market.

On the financial side, long-term financial debt adds up USD3.1bn, increasing 10.93% y-o-y; however, this result comes mostly due to a significant reduction of the short-term portion of the loans rather than representing the contract of new debt. Also, short-term commercial accounts payable increased 50.2% to amount USD1.1bn. All-in, the total amount of liabilities stood at USD7.99bn, increasing 3.7% y-o-y and with 31% of the total corresponding to the short-term portion.

Going back to PDVSA, one of the main issues – and recommendations for solving these – addressed by Molero refers to the financing policy of the company as he believes that, in spite of holding one of the world’s lowest external debt levels when compared to its operations and reserves, the amount of external indebtedness is “sufficient” when considering the current scenario of output, the oil market, and prices. In this respect, he affirms that contracting debt should be conditioned to future increments of output and cash flow of the projects involved; while he also added that the processes for contracting new financing should be enhanced in order to efficiently pinpoint the needed resources.

Venezuela Weekly Report

Participating is all that Matters

October 20, 2017BancTrust & Co. Research Team
  • We describe the latest details that could influence in the outcome of Sunday’s elections
  • The political uncertainty is the most important driver for the Venezuelan sovereign and quasi-sovereign bonds right now, even surpassing the effect of payment expectations in the short-end of the curves
  • Both the IMF and CELAC released their recent reports on economic outlook. We specifically revised the estimations for Venezuela ‘s growth and inflation while comparing them with our local estimations

Next Sunday regional elections are taking place and we will try to take a tour on the different resulting scenarios as well as the current conditions that are present in these previous days. We are now standing in a scenario where – as we have stated before – it all depends on participation rates, but especially on the opposition’s will to participate. In this regard, we manage the hypothesis that the possible developments will be within a margin of maneuver between a lower limit of participation rate slightly above 50% and an upper limit close to 70%. Let us be clear that, as long as the figure is closer to the lower limit, then the result will be more beneficial for the government, and thus a bigger turnout will improve the opposition’s odds.

To begin the analysis, we decided to take a look at the historical turnout figures in regional elections. In this regard, this type of electoral process, the one that chooses the Governor for each of the nation’s 23 states , has historically showed a low participation rate when compared to other processes like presidential or even legislative elections – like 2015 National Assembly elections that had a 75% participation or 2013 Presidential elections with 80%. Since 1989, the best participation rate took place in 2008 with 75%; while at the last regional elections in 2012, the figure was lower and closer to our lower limit scenario with a 53.94% participation rate. The latter confirms just how important participation is when forecasting the possible outcomes.

Taking the above into consideration, recent events have played an important role as well, specifically the relocations of polling stations at the last minute. According to local color, these relocations – that started on Tuesday – lasted until yesterday, Thursday 12 October, until late in the afternoon, which makes it a last minute strategy that was highly denounced by the opposition sectors arguing that this represented the umpteenth obstacle. In this regard, some relocation cases will make electors to move to zones with difficult accessibility, while other are concentrating up to 5 electoral centers into one, passing from 3,000 to 17,000 electors. However, one of the main directors of the National Electoral Council (CNE in Spanish), Socorro Hernandez, stated early this Friday that the relocation process ended last night and that in total 274 centers were relocated, 204 for violence reasons and 70 for infrastructure failures. In detail, the violence reasons refer to those localities that served as protest centers early this year.


Venezuela Weekly Report

Keeping Friends Close

October 13, 2017BancTrust & Co. Research Team
  • President Maduro and Oil Minister Del Pino started the week holding meetings with a group of allies to ensure the support for Venezuela with cooperation agreements and oil prices strategies
  • Even with the PDV’17 payment being almost a reality and President Maduro assuring their willingness to pay, PDV’20 seems to be gaining importance
  • Upcoming regional elections seem to be depending on the participation rate, especially for the opposition’s plan 

Venezuela’s government is far from staying with crossed arms and proved it this week with an extensive diplomatic tour to three of their most closest allies that would serve as support in hard economic conditions. In detail, the tour started in Algeria, then went on to attend meetings with Russia President Vladimir Putin; passing on to Belarus and finally ending in Turkey. At the same time and covering the oil market front, was Oil Minister Eulogio Del Pino discussing options to continue with the OPEC cut while also accompanying President Maduro at the Energy Week in Russia. Even though the tour started in Algeria this was just a pit stop that served to show that there are still close ties between both nations, nonetheless the spotlight was on Russia’s meetings.

In Russia, talks went from the politic agenda to oil agreements. Russian President Putin reaffirmed the commitment to continue with important joint projects despite the decline in trade between the countries, which indicates that Russia will continue to be an ally in the foreseeable future, showing support to Venezuela’s search for stability and making President Maduro thankful for it.

As for the participation of Maduro at the VI World Energy Summit in Moscow, he concentrated on offering to continue stabilizing the oil market especially in the need to come out with a new formula that incorporate all nations –OPEC and non-OPEC- in order to redirect the commercialization with a basis in a currency basket following Venezuela’s example. In this context, Minister Del Pino served as spokesman holding important talks with Trinidad & Tobago and Egypt, on one side assuring new projects for Venezuela to develop and on the other side to ensure oil prices keep rising.

On the side of new projects, both Venezuela oil Minister and T&T agreed they will implement a roadmap on new project financing, gas price analysis and the use of energy resources in the frame of the JV of the offshore field Loran-Manatee in T&T and the Dragon gas field in Venezuela. As for oil prices, it seems that Del Pino’s strategy is to incorporate more actors in the OPEC agreement –actors willing to curtail its production in search of higher prices-, like Egypt whose Minister of Petroleum considered it an “interesting idea” as long as countries are incorporated when their production conditions allow it.

Venezuela Weekly Report

Time To Strengthen Strategic Alliances

October 6, 2017BancTrust & Co. Research Team
  • PDVSA and CNPC strengthened their alliance after agreeing to reactivate 800 oil wells, a few days after PDVSA stated that US sanctions would not affect relations with China
  • Eulogio Del Pino and Nelson Martinez will visit Russia in the first week of October, which we see will help to further tighten the bilateral links
  • The week is finishing with slights losses in average for both sovereign and PDVSA’s curves, which have shown a detachment from oil performance in the last few weeks

According to a statement of the state-owned oil company PDVSA, they agreed with CNPC America the reactivation of 800 oil wells that would add 200kbpd in the short-term, which in our view adds to the recent positive streak of negotiations with the different partners of each project with the focus placed on increasing the currently depressed oil production.

  • Wednesday, November 15 2017


    - Amid uncertainty after the investors meeting, the attention continues to be on the interest payments which grace period expired this week (PDV’27, VENZ’19 and VENZ’24) and the call for default for both Venezuela and PdVSA. In this sense, the ISDA which is in charge since last week of assessing a credit default decision over the PDV’17 payment (which also arrived later than the day expected) said that they will meet again on Thursday with a deadline until Friday to make any decision on

  • Tuesday, November 7 2017


    - The selloff in sovereign and quasi-sovereign curves continued yesterday, with the first leading with an average 11.47% drop – thanks mostly to the whopping correction of both VENZ’18, as the old fell 51.73% and the new decreasing 48.64%. Meanwhile, the PDVSA curve closed the day with a -4% average result. This situation is likely to continue, in our view, for as long as payments of coupons in grace period are not being made, situation aggravated by the closeness of the deadlines of each gr

  • Thursday, November 2 2017


    - After yesterday’s comments of the Depository Trust Company of Venezuela’s bond payments, confirming the transaction and extra official information about some holders that already received payment on 2020 bond, the Venezuelan bonds showed positive movements. In this sense, we can use the PDV’20 experience to expect a similar process for the funds of the PDVSA 2017N to matured today for a total amount of USD1.170mn between principal and interest, with an announcement of the payment during

  • Wednesday, November 1 2017


    - Until today 01 January 2017, will be held the process to postulate for the municipal elections, which are expected for around 10 December. However, there is no clear information on the ongoing process and the opposition response has not been clear either. In detail, seven opposition parties has decided to not participate in the next electoral process, however we do not discard that some of its member could –at the very last minute- decide that they will participate as an independent candidat


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