Caracas Chronicles

Have you heard? PDVSA’s latest debt swap deal isn’t going great. After sweetening the terms of the deal, PDVSA’s  been forced to extend the deadline…twice. By now they’re resorting to outright threats to browbeat bondholders into swapping.

It’s no surprise, then, that Venezuela’s combination oil-company-chief/oil-company-regulator (what could possibly go wrong with that?!) Eulogio Del Pino is now searching for someone to blame, and it looks like he’s found it in local newspaper “El Nuevo Pais”.

Last Friday, Del Pino introduced a libel suit against this paper in a Caracas court. In his words, this paper “…is trying to harm, in whatever way they can, an operation that we have offered transparently”. The previous week, he had announced this legal action on Twitter, under orders of Nicolas Maduro, who accused the paper of “…publishing false information to destroy PDVSA.”

At the center of the controversy is an article published by El Nuevo Pais on October 7th that hints that the State oil company is out to privatize CITGO. The piece is based on a report by Bloomberg from the day before, saying that PDVSA would use its U.S. subsidiary as collateral (which — not that this makes any difference — happens to be true.)

El Nuevo Pais responded to PDVSA’s lawsuit with a written statement accusing the government of using this legal action as an excuse to shut the paper down altogether. El Nuevo Pais has an uncompromising editorial line against the government and has pledged to keep it that way in a TV interview. As the paper put it,

“This lawsuit is not for reporting the collapse of PDVSA. This lawsuit is for being an unyielding paper, which doesn’t buckle under pressure from any advertiser’s interests. It’s designed to depend on the pregón, the street hawker. This suit has come because in this paper the opposition has found a megaphone to burst through the government’s communicational hegemony. And not just the opposition, but dissident Chavismo as well. That’s what Nicolas Maduro is afraid of…

We can be chased, but we have our combat gear put on. We will defend the message carried in our motto: ‘This country of all must be built for all.’ We won’t be the first newspaper closed by a dictatorship.”

El Nuevo Pais’s founder and director, Rafael Poleo, responded to the lawsuit by putting a series of questions on his Twitter account to Nicolas Maduro about the current state of PDVSA, such as: “If PDVSA is such good condition, why doesn’t he call the financial press and answer the reports that suggest otherwise?” The President of the National Assembly, Henry Ramos Allup who writes a weekly opinion article for the paper, showed his solidarity and support in his last column.

Sadly, this kind of legal action against the press is not unprecedented in Venezuela: Last year, Diosdado Cabello sued local newspapers Tal Cual and El Nacional (along with news website La Patilla) for reproducing an article from the Wall Street Journal linking him with drug trafficking.

Cabello also took the WSJ to court in New York City for libel. Currently, his case is still active this month, as WSJ’s lawyers asked the judge to throw out the entire suit.

So far, there’s no indication that PDVSA will proceed legally against Bloomberg. In the meantime, an earlier piece indicated that the lack of interest from investors is the reason why the latest bond offer is falling flat in the markets, according to analysts quoted by the financial news outlet.

“Repetitive delays now logically suggest that the deal is struggling,” Siobhan Morden, the head of Latin America fixed income strategy at Nomura Holdings Inc., said in an e-mailed note. “The stakes are high on whether a successful transaction allows for the muddling through strategy to continue or whether an unsuccessful transaction reaffirms repayment stress through next year.”

The lack of interest from investors is somewhat justified. The conditions offered by PDVSA are not attractive enough, not only because bondholders would have preferred a higher swap ratio -the amount of new bonds PDVSA gives in exchange for PDVSA 2017 bonds-, but also because many market analysts think that CITGO Holding Inc. assets guaranteeing the new bonds are simple….worthless.

In fact, PDVSA had to extend the early tender deadline to participate in the deal twice, arguing that participation was “substantially less” than PDVSA hoped for (at least 50%). Is this El Nuevo País’s fault? Of course not. Bondholders definitely pay attention to local media when making investment decisions; especially if we’re talking about risky countries like our own. But to blame a local newspaper for the potential failure of a bonds swap deal that many investors already said is not attractive enough, is completely far-fetched.

Other factors that could be influencing the PDVSA bond proposal include a recent lawsuit from ConocoPhillips (which considers this debt swap deal as “fraudulent”) and the unilateral approval of 2017 national budget via decree by the Executive (under supervision of the TSJ’s Constitutional Chamber), illegally bypassing the constitutional role of the National Assembly regarding the budget.

Regardless of what happens with this particular case, the State is becoming more and more hypersensitive with non-hegemony media outlets, even falling into the bizarre: Last week, two journalists were detained for over two hours just for taking a picture of Maiquetia Airport’s floor.