Venezuela Weekly Report

An Ideal Deal

July 14, 2017BancTrust & Co. Research Team

• Gold Reserve announced a third amendment to the Settlement Agreement with Venezuela, including monthly payments adding to USD1bn by June 2019 and the placement of USD350mn in sovereign financial instruments as collateral
• PDVSA bonds hit a month-high this week despite falling oil prices and international reserves nearing the USD10bn mark
• The clash between public authorities continued this week with the Attorney General rejecting a ruling of the Supreme Court for considering it illegitimate while the Congress moves forward to a plebiscite regarding the Constituent Assembly on 16 July

The Canadian gold mining company Gold Reserve posted on its website yesterday a new amendment to the Settlement Agreement that maintains with Venezuela regarding a payment of USD1.04bn by the latter. The new debt distribution includes 20 monthly payments of USD29.5mn, three monthly payments of USD40mn and a final payment of USD285mn, adding to USD1bn by June 2019, as well as the placement of USD350mn in sovereign financial instruments as collateral. In our view, this new schedule of monthly small quotas makes feasible the payment of Venezuela even despite the distressed liquidity levels that the South American country is undergoing. The sovereign is facing USD5bn in principal and interests next year.

Venezuela Weekly Report

Willingness is Still There

July 7, 2017BancTrust & Co. Research Team
  • Fitch affirmed Venezuela’s credit rating at “CCC”, mostly driven by payment willingness in spite of a new contraction estimate for 2017, low international reserves and low oil prices
  • International reserves continue their downtrend after 29 June’s payment. We believe this, when mixed with the monetary liquidity performance, explains the current FX dynamics
  • The downfall of production at PDVSA refining complex of Paraguana is expected to continue, therefore increasing the prospects of oil derivatives imports

Fitch Ratings issued on 29 June their latest report on Venezuela, affirming their credit ratings at “CCC” for long-term foreign currency issuances and “C” for short-term currency issuances. The most important drivers for affirming the rate, in a context where a vast majority of macroeconomic indicators have worsened significantly, are the “strong” payment record and the willingness showed by the sovereign to continue honoring its financial commitments. This goes in line with our long-time view referring to sustained payment willingness in spite of the macroeconomic distortions, and the recent financial operations to increase liquidity levels support our stance.

Venezuela Weekly Report

Venezuela’s Debt on the Move

June 30, 2017BancTrust & Co. Research Team

• The Venezuelan debt complex accumulates a 12% fall in two months, as news regarding distressed financing operations spring and the political crisis meets new highs
• The National Assembly invoked article 350 from the constitution, calling the society to ignore the constituent process while the Supreme Court moves forward to judge the Attorney General’s merits
• The government announced several cabinet changes, including more military in ministries and former civilian ministers running for seats in the National Constituent Assembly

A mix of negative news and the ongoing political confrontation in Venezuelan have taken its toll in sovereign and PDVSA bonds with drops across the board this week. Both curves accumulated losses of around 12% in the last two months and their averages currently stand below the USD50 mark. In detail, sovereign debt fell 1.81% w-o-w and PDVSA bonds lost 0.96% w-o-w while their spread continued to shrink (USD49.75 against USD49.46). In our view, political uncertainty continues to be the key variable to follow when evaluating both curves’ performance and its influence is far from over in the short-term.

Venezuela Weekly Report

Crystallex Striking Again

June 23, 2017BancTrust & Co. Research Team
  • Mining company Crystallex was authorized by the District Court of Columbia to pursue the enforcement of the USD1.2bn award and they are expected to file in Delaware and other districts
  • Attorney General Luisa Ortega Diaz had another busy week filing requests at the Supreme Court. Meanwhile, the US is preparing to add to the political pressure with upcoming sanctions for Venezuelan officials
  • Venezuela and China agreed on USD2.8bn in financing, while CITGO, PDVSA and the Aruban government signed a bridge loan agreement for refurbishing the Aruba refinery

The mining company Crystallex received the authorization of the court for the District of Columbia to pursue the enforcement of the USD1.2bn award favoring them, in what it is a new stage of the controverted facing between the company and Venezuela. The court considered that a “reasonable” period of time has passed since the confirmation of the award, dated 25 March. Now, Crystallex is expected to file in other District Courts such as Delaware’s in order to gather as much support to their claim as they can.

Venezuela Weekly Report

Venezuela’s Crossroad

June 16, 2017BancTrust & Co. Research & Strategy Team
  • Signs of Venezuela’s urgency for liquidity are becoming more evident, as this week it was known the intention to perform another bond reselling with the VENZ2036 at an 80% discount
  • The Attorney General delivered a nullity request at the Supreme Court regarding the process of the National Constituent Assembly
  • China and Russia keep presenting themselves as the first allies of the country, with more projects to develop with emphasis in the hydrocarbons and mining sector

Venezuela continued drawing attention this week due to the large needs for liquidity in hard currency, initiating with a report from the Wall Street Journal where it was known the country’s intentions to resell bonds worth USD5bn with maturity in 2036. These bonds were originally issued in 29 December in a private placement to the state-owned Banco de Venezuela. According to the report, the operation is intended to carry an 80% discount, meaning a selling price of USD1bn. If this operation is confirmed, it will join similar operations carried out last week with Goldman Sachs and Nomura. However, until the moment of writing there is no information that this operation has been carried out, even when according to secondary sources initial approaches for this deal began before the sale of the PDVSA’22 to Goldman Sachs last week.

Coupled with this, the Russian government confirmed this week that Venezuela has failed to make the payments of a renegotiated debt that initially amounted up to USD1bn, from loans that were used to finance supply of Russian Industrial products. The Venezuelan debt with Russia reached last year USD2.84bn – when the renegotiation took place – and it was expected that around USD2.2bn were paid within five years, being the first payment the one due on 31 March for an amount of USD362mn.

Finally, the last information that came out this week was that, according to secondary sources, Venezuela missed USD30mn on interest payments to Andean Development Corporation, known as CAF, and it has entered into a 30-day grace period. However, we believe that this does not stand necessarily for an alarming sign as the country has previously entered into the 30-day grace period and ended up paying, so we will be watching how it develops.

Attorney General Hits Again

Just one week after her first visit to the Supreme Court, the Attorney General, Luisa Ortega Diaz, head again to the TSJ – this time to the Electoral Court – to deliver a nullity request for the National Constituent Assembly. Diaz requested a declaration of nullity to the call for the ANC, as she considers that the presidential decree did not comply with the legal requirements, referring again to the fact that the people is the one with the power to convoke an ANC. The nullity request also aims to the electoral basis and the registration process of the candidates, as she rejected the fact that there was no creation of any decree to rule this electoral basis, as well as these were not published in a national gazette as it is supposed to.

  • Wednesday, July 19 2017

    -The National Assembly (AN in Spanish) approved the final reports on the popular consultation of 16 July and the candidates for magistrates of the Supreme Court (TSJ in Spanish). The latter is part of the process of one of the main items of the current agenda of “zero hour” established by the opposition party Democratic Unity Roundtable (MUD in Spanish), as the legislators expect to exercise their constitutional ability to name – on Friday 21 July – new magistrates and thus actively repudiate the current Supreme Court and i

  • Tuesday, July 18 2017

    - Following the results of the public consultation election on Sunday, the Democratic Unity Roundtable (MUD in Spanish) called for a 24-hour national strike on Thursday in protest against the National Constituent Assembly (ANC in Spanish) proposed by the administration of Nicolas Maduro. Furthermore, Freddy Guevara, deputy President of the Congress, said they expect to name the new magistrates of the Supreme Court on Friday. We can anticipate this move will not be acknowledge by both the government and the Supreme Court, but will u

  • Thursday, July 13 2017

    - S&P Global Ratings, following its Tuesday action of downgrading Venezuela’s rating, yesterday decided also to downgrade the corporate credit of Corporacion Electrica Nacional, better known as CORPOELEC (former ELECAR). The action resulted in a downgrade from “CCC” to “CCC -“while also maintaining the negative outlook. In detail, the rating agency argued that they are taking this action against the corporate as a result of the sovereign’s downgrade, as it reflects that this is a “government-related entity” (GRE

  • Wednesday, July 12 2017

    - A US appeals court blocked Exxon Mobil Corp from enforcing a USD1.6bn award against Venezuela for an asset seizure back in 2007. The court ruled that the judge made a mistake in excusing Exxon from complying with procedural requirements to enforce the October 2014 ruling. In this way, the court supported Venezuela’s point that Exxon should have tried to enforce the award under the federal Foreign Sovereign Immunities Act (FSIA), instead of streamlined procedures. All-in, Exxon's petition was dismissed without prejudice, meaning


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