February 13, 2015

Logistics & Transport

 

Airlines uncertain about new exchange system

Airline sources say there are doubts as to what exchange rate will be used as a reference for the sale of air fares, although they believe it will be the SICAD rate at VEB 12 x US1, the rate that has been announced for allocations to travelers. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/incertidumbre-en-lineas-aereas-ante-nuevo-esquema.aspx#ixzz3RWmIwxvx)

 

 

Oil & Energy

 

Venezuela mortgages CITGO at 12% to raise US$ 2.8 billion

Venezuela’s bid to squeeze money out of its U.S.-based oil refining company is coming at a steep price. Delaware-based CITGO Holding Inc., a unit of Venezuela’s state-owned oil producer, had to boost the yield on a US$ 1.5 billion, five-year bond sale by more than a percentage point to 12.1% to attract buyers, according to a person familiar with the matter, who asked not to be identified because of company policy. Similar-maturity debt from CITGO’s refinery peers yield 8.1%  on average. The higher rate was one of several incentives CITGO offered to obtain financing. CITGO, which will use the proceeds to fund a dividend to its parent, also agreed to pay a higher interest rate on a US$ 1.3 billion loan and agreed to a provision that will give creditors complete control of its operating company in the event of a default. “It feels like a desperation move” by Venezuela, Geoffrey Roth, an analyst at Aberdeen Asset Management, said by telephone from New York. With Monday’s debt sale and a recent payment from the Dominican Republic for oil purchases, Venezuela has raised almost US$ 5 billion in the past two weeks -- equivalent to more than 20% of its international reserves. (Latin American Herald Tribune, http://laht.com/article.asp?ArticleId=2373486&CategoryId=10717; Bloomberg, http://www.bloomberg.com/news/articles/2015-02-10/venezuela-s-citgo-squeeze-not-cheap-with-12-yield-andes-credit)

 

Maduro says Venezuela must prepare for two years of low oil prices

President Nicolás Maduro has admitted the nation has seen its FOREX income shrink by 60% and said the country "must prepare for two years of low oil prices, very low". He said he would get dollars from his international allies. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/maduro--venezuela-debe-prepararse-para-dos-anos-de.aspx#ixzz3RQgaIxec)

 

PDVSA can sell income from oil sales in new FOREX system (SIMADI)

Central Bank President Nelson Merentes has confirmed that PDVSA and its affiliate may sell FOREX from oil exports at any of the exchange rates within the new system, as a way to increase FOREX supply to local production. More in Spanish: (El Universal; http://www.eluniversal.com/economia/150212/bcv-esta-descartada-la-unificacion-cambiaria; AVN; http://www.avn.info.ve/contenido/merentes-nuevo-sistema-cambiario-promoverá-equilibrio-asignación-divisas)

 

 

Commodities

 

SIDETUR paralyzed since November for lack of raw materials

The six plants at the National Steel Complex - best known as SIDETUR before being taken over by the government - have been paralyzed since November 23, 2014. The industry's labor union has prepared a report showing that for lack of 24 inch electrodes and other raw materials production of 900,000 tons of steel remains paralyzed. "President Nicolás Maduro and Vice President Arreaza lied to the nation when they reported there was a record increase in production during 2014", says union secretary general, Alejandro Álvarez, who reports only 46.61% of the production goal was met. He added: "There is no cash flow, no way to pay suppliers and there is total uncertainty as to wages for workers". More in Spanish:  (El Nacional; http://www.el-nacional.com/)

 

 

Economy & Finance

 

Currency devalued 69% in new "free" exchange system

Venezuela has launched a "free" foreign exchange platform that depreciates local currency by 69% in efforts to bolster state coffers amid tumbling oil revenue. The Central Bank published an opening rate of VEB 170 per US$1 that will authorize banks to trade cash and swap bonds on a state-operated exchange. The change amounts to an easing of 12-year-old currency controls and marks a small step toward a market economy. The decision might help Maduro to keep more FOREX received by his government, but it could also accelerate high inflation which stands around 64% annually amid recession and scarcities. However, the changes do not eliminate the unwieldy three-tiered exchange structure seen by investors as the country's principal stumbling block to economic growth. The government said it would continue to sell the majority of its foreign currency on two regulated systems that provide cheap dollars of 6.3 or 12 bolivars for priority imports. Finance Minister General Rodolfo Marco Torres said the new system - called SIMADI - will be "totally free" with "the market itself setting the exchange rate." But officials said trades would have to be made through authorized banks or exchange houses and only people with dollar-denominated bank accounts can take part. All banks and 29 exchange houses have been authorized within the new system. Analysts also speculated the new system would likely be more tightly regulated than officials suggested. Risa Grais-Targow, an analyst at the Washington-based Eurasia Group, says "I think it will be less flexible because the government's incentives right now are to increase control," she said. "Despite the fanfare that is likely to accompany the apparent shift towards a market-based foreign exchange system, we doubt that it will solve Venezuela's deep economic problems," Capital Economics said in a note on Tuesday's changes. (Bloomberg, http://www.bloomberg.com/news/articles/2015-02-12/venezuela-new-fx-market-to-start-as-central-bank-publishes-rules; Reuters, http://www.reuters.com/article/2015/02/11/us-venezuela-economy-idUSKBN0LE1RS20150211; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42771&idc=2; El Universal, http://www.eluniversal.com/economia/150212/venezuelan-retail-forex-market-opens-on-february-19; http://www.eluniversal.com/economia/150212/central-bank-of-venezuela-rules-out-forex-unification; AP, http://news.yahoo.com/venezuela-unveils-foreign-exchange-system-182347429.html?utm_source=Sailthru&utm_medium=email&utm_term=%2AMorning%20Brief&utm_campaign=2014_MorningBrief2.11.15; and more in Spanish: El Universal; http://www.eluniversal.com/economia/150213/el-simadi-comenzo-con-una-tasa-inicial-de-170-bolivares-por-dolar; Diario 2001, http://www.2001.com.ve/en-la-agenda/90337/simadi-cerro-en-170-04-en-su-primer-dia-.html; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/simadi-arranco-a-una-tasa-de-bs-170-por-dolar.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/bcv-publicara-diariamente-el-tipo-de-cambio.aspx; El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/dolar-simadi-cuesta-26-veces-mas-que-la-tasa-del-c.aspx; AVN; http://www.avn.info.ve/contenido/dólar-simadi-cerró-170-bolívares-primer-día-operaciones; Reuters, http://lta.reuters.com/article/topNews/idLTAKBN0LG33R20150213?sp=true; El Nacional; http://www.el-nacional.com/)

 

Companies may repatriate capital through the new SIMADI system

Finance Minister General Rodolfo Marco Torres says companies may use the newly created Marginal FOREX System (SIMADI) to repatriate capital, "all they have to do is show where the funds have come from". More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/empresas-podran-repatriar-capital--via-simadi.aspx#ixzz3RQk4KriA)

 

Venezuela is causing havoc on U.S. companies

Equities investors face billions of dollars in write-downs by U.S. corporations with exposure to Venezuela, as many have been unable to repatriate bolivars back into dollars due to delays in the currency controls. At least 40 major U.S. companies together carry at least US$ 11 billion of bolivar assets on their books, concentrated among 10 companies that have disclosed about US$ 7.3 billion in assets linked to the country's currency system., including GENERAL MOTORS Co, household goods maker PROCTER & GAMBLE Co and drugmaker MERCK & Co Inc. Other foreign companies with notable exposure to Venezuela include Spain's TELEFONICA and German drugmaker BAYER. Some companies have already taken charges on their Venezuela exposure, including KIMBERLY CLARK, FORD and SCHLUMBERGER. GENERAL MOTORS last week said in its annual report that instability in Venezuela could lead to a US$ 900 million hit to earnings. PEPSI is its latest victim. PEPSICO says it took a US$ 126 million hit last year because of Venezuela's currency, the bolivar, losing value. The country's economy is widely regarded as the worst in the western hemisphere. PEPSI warned that if the bolivar devalues any more than it already has, it will be a big drag on 2015 profits as well. Coca-Cola lost over US$ 660 million last year from its operations in Venezuela, and a group of airlines said last year that the government owes them a combined US$ 4 billion. U.S. airlines like DELTA and American have drastically cut down their flights to Caracas. European airlines, like LUFTHANSA and ALITALIA, cut all their flights to Venezuela. (CNN, http://money.cnn.com/2015/02/11/investing/pepsi-venezuela-hurting-us-companies/; Reuters: http://www.reuters.com/article/2015/02/11/us-venezuela-economy-idUSKBN0LE1RS20150211)

 

Maduro calls new exchange system a "trial"

President Nicolás Maduro says the new FOREX exchange system is "marginal in relation to that which is fundamental" and that the main demand for FOREX will be met by the government at VEB 6.30 x US$1. "This is a market where 70% is covered at VEB 6.30, the other 20-25% is covered by SICAD and the remainder, 3-5% which is left, is this system which is a trial." More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/nuevo-mecanismo-cambiario--es-un-ensayo---dice-mad.aspx#ixzz3RQiEpegm; http://www.elmundo.com.ve/noticias/economia/banca/infografia---asi-funciona-el-nuevo-esquema-cambiar.aspx; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/maduro-nuevo-sistema-cambiario-es-un-ensayo.aspx)

 

Venezuelan individuals may buy up to US$ 10,000 a year

(US$ 300 a day) with the new official FOREX system at a rate to be determined by offer and demand, according to the norms published. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42772&idc=2)

 

New exchange rate system criticized by opposition, economists

The new exchange rate measures announced by the government have been received with skepticism by the political opposition as well as by some economists. Two-time presidential candidate and governor of Miranda, Henrique Capriles, called the measures nothing but “a play on words,” saying that the government had handed the people just another devaluation. According to the own calculations of economist Miguel Ángel Santos, in times of "revolution" these "Bolivarians" have devalued the national currency by 32,900%, or 46% each year. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2373713&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=2373743&CategoryId=10717)

 

FEDECAMARAS warns exchange system will not improve supply in the short term

Jorge Roig, president of the nation's largest business organization, FEDECÁMARAS, says time will be needed to supply store shelves with products and reduce nationwide consumer lines. "Even if  you were to immediately allocate all the FOREX industry needs, those raw materials need to come from where ever they are, be processed, and you will not see that on store shelves before two or three months". More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/roig-sistema-cambiario-no-mejorara-abastecimiento-.aspx#ixzz3RWlkj2jP)

 

Venezuela bonds tumble as investors spurn new FOREX system

Venezuela's dollar-denominated bonds tumbled on Wednesday after the government announced a new foreign exchange platform that was widely seen as insufficient to resolve an economic crisis and ease market fears of a possible bond default. The government has unveiled a new free-floating currency platform called SIMADI, the third system in a three-tier exchange control mechanism meant to bolster state coffers. Venezuela faces a potential gap in funding in 2015 given what it owes to foreigners holding U.S. dollar denominated debt. Siobhan Morden, a veteran emerging market debt strategist and head of Latin America strategy at Jeffries in New York believes the government needs to fill a US$ 14 billion hole in its balance sheet in order to meet its obligations. (Reuters, http://www.reuters.com/article/2015/02/12/venezuela-economy-idUSL1N0VL13920150212)

 

Venezuela will pay US$ 2 billion on sovereign bond service in March

Finance Minister General Rodolfo Marco Torres told media that the government will pay the sovereign bond in March, and ruled out a default. He said around US$ 2 billion will be paid out in March to service debt. More in Spanish:  (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/gobierno-pagara-en-marzo-2-000-millones-del-bono-s.aspx#ixzz3RQpWeO00; El Universal, http://www.eluniversal.com/economia/150211/venezuela-honrara-sus-compromisos-de-deuda-externa; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/gobierno-venezolano-cumplió-pago-del-bono-soberano-amortisable-250-millones)

 

Hit hard in Venezuela, U.S. bond funds keep their nerve

Many U.S. bond funds hammered by an almost 30% decline in Venezuelan bond prices last year have kept big bets there, though some portfolio managers including PIMCO and Van Eck Global have pared their exposure in recent months, Venezuela remains among the largest positions for U.S. funds that focus on emerging market debt. Buttressing support for optimism is Venezuela's reputation for paying its debts. "While Venezuelan bonds have come under pressure over the last quarter, we continue to believe that the long-term story remains positive," Fidelity portfolio manager John Carlson said in his latest commentary for investors. (Reuters, http://www.reuters.com/article/2015/02/12/us-venezuela-usa-funds-insight-idUSKBN0LG0C720150212)

 

 

Politics and International Affairs

 

Maduro claims he has dismantled a US backed "coup d'etat"

Maduro says a new "coup attempt" has been foiled with the arrest of a group of Venezuelan air force officials plotting to overthrow him with the connivance of domestic political foes and the United States. He says about five Air Force officers have been detained, and claims loyal officers denounced the plan which called for a Tucano bearing Venezuelan markings brought in from abroad to bomb Miraflores Palace and ceremonies marking Youth Day - February 12th - at the same time a manifesto calling for a transition government was published and violent demonstrations broke out in several cities.  "The government of the United States is the one behind destabilization plans and coups d'etat in Venezuela", he said. Opposition leader Henrique Capriles quickly retorted on Twitter: "The only coup d'etat which took place today was organized by the government against our currency, a mega-devaluation." (Reuters, http://www.reuters.com/article/2015/02/13/us-venezuela-rallies-idUSKBN0LG2IC20150213?feedType=RSS&feedName=worldNews&utm_source=Sailthru&utm_medium=email&utm_term=%2AMorning%20Brief&utm_campaign=2014_MorningBrief.2.13.15; and more in Spanish: El Carabobeño, http://www.el-carabobeno.com/portada/articulo/98750/maduro-anunci-detencin-de-militares-implicados-en-intento-de-golpe; YVKE Mundial, http://www.radiomundial.com.ve/article/frustrado-intento-de-atentado-golpista-nicol%C3%A1s-maduro-que-ser%C3%ADa-ejecutado-por-la-aviaci%C3%B3n; Reuters, http://lta.reuters.com/article/topNews/idLTAKBN0LG33R20150213?sp=true)

 

Soldiers, students face off at anti-Maduro rallies, Maduro alleges Air Force "coup" plot

Troops blocked students marching against President Nicolas Maduro on Thursday as pro-government supporters also rallied on the anniversary of 2014 protests that led to 43 deaths. Students demonstrated in 17 states seeking to honor those dead and seek freedom for those still jailed in what is known as "The Tomb" at secret police headquarters. National Guard soldiers and police fired teargas and buckshot in the volatile western city of San Cristobal against demonstrators tossing rocks and Molotov cocktails.  19 students were detained and dozens wounded. In Caracas, troops cordoned off several hundred students on an unauthorized march to a church where they planned a mass in honor of demonstrators who died. Instead, a priest came out and said brief prayers in the open-air. Also in the capital, red-clad supporters of Maduro held a rival rally. (Reuters, http://www.reuters.com/article/2015/02/12/us-venezuela-rallies-idUSKBN0LG2IC20150212; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42775&idc=1; Fox News, http://www.foxnews.com/world/2015/02/12/violent-demonstrations-return-to-venezuela-on-one-year-anniversary-protest/; and more in Spanish: El Nacional; http://www.el-nacional.com/)

 

Russian, Venezuelan defense ministers hold cooperation meeting

Russian and Venezuelan defense ministers, Sergei Shoigu and General Vladimir Padrino López, have met in Caracas to discuss defense matters and technical-military cooperation. The Russian minister's visit to Venezuela is part of his tour of several Latin American countries to strengthen Russia's relations with sister nations. Shoigu will also visit Cuba and Nicaragua. (El Universal, http://www.eluniversal.com/nacional-y-politica/150211/russian-venezuelan-defense-ministers-hold-cooperation-meeting)

 

Lilian Tintori meets with US Vice President Biden, reports attack on imprisoned Lopez and Ceballos

US Vice-President Joe Biden met with Lilian Tintori, wife of Venezuelan political leader Leopoldo López, and two human rights advocates to talk about the situation in Venezuela on the basis of demonstrations occurred one year ago.

After the meeting, Tintori pointed out that Biden "was very empathetic" and that he was "really concerned." Upon her return she charges that when she tried to visit her husband she encountered a disproportionate number of hooded officials, dressed in black, with weapons and jackets bearing military intelligence insignia that were violently trying to enter the cells of both López and imprisoned San Cristóbal mayor Daniel Ceballos. She says the group was headed by prison director Colonel Homero Miranda and were shouting insults against the prisoners. When she protested they said it was to be a routine search, but there were no officials from the Public Defender's office or the Attorney General's office present, as required by law. When she denounced the illegality of the procedure they stopped trying to enter the cells and threatened "we will be back in full force, so be ready". (El Universal, http://www.eluniversal.com/nacional-y-politica/150212/joe-biden-receives-lopezs-wife-and-human-rights-advocates)

 

 

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group