Caracas Chronicles

Venezuelan bond markets are on edge with this latest news from J.P. Morgan:

PDVSA has activated the 30-day grace period in the PDVSA 9% ‘21s, PDVSA 6% ‘24s and PDVSA 9.75% ‘35s. Last week, PDVSA had coupon payments amounting $539 million. As reported today by the paying agent (Citi) and Clearstream, PDVSA has only paid $135 million on the PDVSA’s 6.0% ’26 while other funds are still pending. PDVSA has not responded to our calls or emails.

PDVSA was supposed to pay a total of $539 million in interest last week for several bonds and it only paid $135 million for one of them. The balance, $404 million, is missing in action.

PDVSA is either way, way short on cash, or its finance department is run by Cantinflas. Alarmingly, it’s not entirely clear which one it is.

This is not quite Default, not with a capital-D yet anyway. Under the bond prospectus, PDVSA entered a 30-day grace period after it failed to make payments at the contractual date. It’s only if PDVSA fails to pay bondholders during this 30-day grace period that bondholders can trigger an outright Default.

Bizarrely, PDVSA’s CEO tweeted a press release to clarifies that the bonds were paid, despite the fact that bondholders say they never got the money. 

Una vez más las calificadoras de riesgo internacionales y sus títeres nacionales salen a propagar información falsa irresponsablemente!! pic.twitter.com/SRswh6YO3a

— Eulogio Del Pino (@delpinoeulogio) November 22, 2016

It’s like he’s saying PDVSA put the check in the mail, and the fact that it hasn’t arrived yet is your problem. He then went on to, you guessed it, blame a giant international conspiracy for his screw-up. 

Still, the Cantinflas Hypothesis can’t be dismissed.

This stunning development is consistent with the Wall Street consensus from earlier in the day that this is down to some administrative SNAFU — though a SNAFU on a hell of a scale, if that’s what it is.

That said, I’m not entirely convinced. If PDVSA made a clerical error, they would admit it and say everything is fine. But if they were scrambling for cash in a liquidity squeeze, they would also say it was a clerical error and that everything is dandy, because PDVSA would gain nothing by admitting a liquidity crunch.

So Eulogio’s story that everything’s just fine won’t convince me until bondholders actually get paid.

Still, the Cantinflas Hypothesis can’t be dismissed. There have been a number of important changes at the operational level at PDVSA, including Citbank’s decision to resign as PDVSA’s paying agent. The ongoing brain-drain is probably hitting PDVSA’s finance and accounting departments, too. It kind of boggles the mind that there may be nobody left in La Campiña able to perform routine administrative tasks like, y’know, paying debts on time…but there you go.

If PDVSA does not have the cash to make these payments, Wall Street analysts underestimated how bad PDVSA’s cashflow situation is. Before this news, most Wall Street analysts believed that if PDVSA defaults, it will be in 2017 or later. It doesn’t seem to make sense that they would’ve bent over backwards to make larger payments a few weeks ago only to sleepwalk into default last week. But who knows? So much about Venezuela doesn’t make sense these days.

At best, this is just an embarrassing blunder for PDVSA. At worst, it’s the end of the line. Either way, it’s not encouraging. Poor PDVSA 35s, who go to sleep in the worst kind of limbo: not even Eulogio’s word is backing them now.