Kenneth Rapoza | Opinions expressed by Forbes Contributors are their own
Venezuela’s oil giant PdVSA was late on a coupon payment for its 2035 bonds and provided no explanation for it. The market quickly saw it as a solvency issue, bond prices fell, Nicolas Maduro, the country’s beleaguered president, threatened to sue J.P. Morgan for leaking the news about the missed due date.
What is to be expected, really? This is a CCC rated debt within a hair trigger alert of default. Yet, if anyone thinks that PdVSA will fold, they might as well believe that — long term — Venezuela becomes Cuba. Long-dated bonds will be around long after Maduro and his party are out of power.
Investors buying the long-dated PdVSA debt are betting on Maduro leaving office by 2018. A recall referendum is dead. He’s not going anywhere and will serve out is term. Investors buying PdVSA also believe Maduro will not let the country’s only credible source of foreign, dollar denominated capital go belly up. If so, as one hedge fund manager told me, Maduro would be seen hanging from a lamp post in Caracas.
What does that missed payment translate to?
Siobhan Morden, Nomura’s resident PdVSA guru, says one could argue logistical constraints such as Venezuela redirecting funds through offshore trusts in China. Venezuela had no problems paying on the PdVSA’21s, 2024s and 2026s. The selective delay on the 2035 was for $146 million in interest payments.
How much of the delay is incompetence or cashflow stress?
Venezuela is surely in “penny pinching” mode. The economy is in a shambles. The country is getting poorer by the minute. An OPEC output cut today should provide it with some lift, as some market analysts like Naeem Aslam of ThinkMarkets in London believe oil can easily stay in the $50s now that supply will ease from the main producers. This is a positive for PdVSA on the margin.
As far as what investors really know about PdVSA’s ability to pay, there is actually limited information on that. Data transparency in Venezeula is minimal. We know the central bank has around $11 billion in reserves, more than enough to service PdVSA debt.
Bron: Forbes