February 19, 2015
Venezuela
New FX Rate SIMADI "Marginal Foreign Exchange System" - Truly Marginal At Best
Venezuelan authorities launched the new FX platf
platform consisting of three different FX
rates according to the government's perception of necessity, the latter itself divided
70% (official rate), 30% (SICAD). Auction platforms Sicad I and II were fused to
12/USD, floating rate SIMADI was created (most rece
recently traded at a 171.6/USD rate),
and the official rate of 6.3/USD was maintained. The SIMADI (Sistema marginal de
divisas) is new and launched this month; it is an FX platform based on market pricing
for both individuals and companies. This is a marginal attempt to improve the
extreme and growing economic distortions. This FX adjustment is only a partial
devaluation, and once again woefully insufficient to make a significant dent in the
country's economic distortions (enormous scarcities, inflation, negati
negative rate of
economic growth, scarcity of USDs) as Venezuela's infamous currency controls
remain in place.
VENEZUELA--Newest
Newest FX Platform Rates. Sources: BCV, Bulltick, DolarToday.com
250
200
SICAD 12/USD
SIMADI 171.6/USD
150
100
50
Dolar paralelo
Oficial
0
6-17-2012 9-10-2012 12-2-2012 2-25-2013 5-22-2013 8-10-2013
2013 10-29-2013 1-18-2014 4-9-2014 6-28-2014 9-16-2014 12-5-2014
Critically, still 70% of transactions are at the massively overvalued official rate of
6.3/USD, compared to the black market rate of 189 bolivars/US
bolivars/USD, costing the country
enormously, contributing to a fiscal deficit of some 15
15-20% of GDP, and in addition,
meaning fewer Dollars available that can go to the "free float" FX platform (SIMADI).
While transactions tied to the official rate is down from the 80% previously, the
continued use of the 6.3/USD for a majority of goods will not close the fiscal gap; a
mega devaluation is needed to do that.
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Kathryn Rooney Vera
Macroeconomic Strategy
[email protected]
+1 786.871.3758
Bottom-Line for the Markets: Venezuelan authorities have not executed the magnitude of policy adjustments that
would make their debt sustainability situation more comfortable at current oil price levels, which in fact have risen
since our last report. Venezuelan crude is priced at $47.05 p/b, off the low of $38.82 p/b back in January. Instead,
I
the administration appears to be banking on a combination of creative measures and ongoing support from
China/Russia
Russia and a recovery in oil prices. Five-year CDS spreads have crunched in from extreme levels reaching
6,474bps on January 30, 2015 to 4,000bps over comparable US Treasuries today. Benchmark Venezuela 2027s
yields are similarly off the highs of 27.87% posted last month but trading at a still-extreme 25.14% today. The yield
to average life on the PDVSA 2017s has recovered to 40.5% from 51% at our last writing. We maintain our view of
ongoing payment of debt obligations this year in the context of a rebound in oil prices, which we see in a "v"v
shaped" recovery;
covery; in this context Venezuela would positively surprise the markets this year.
VENEZUELA-Five
Five Year USD-Denominated
USD Denominated Debt Servicing Profile Principle
and Interest. Sources: Bloomberg, Bulltick
$6.0
$16.0
VENZ Principal
VENZ Interest
PDVSA Principal
PDVSA interest
Total (RHS)
$14.0
$5.0
$12.0
$4.0
$10.0
$3.0
$8.0
$6.0
$2.0
$4.0
$1.0
$2.0
$-
$0.0
2015
2016
2017
2018
Market talk has been that PDVSA would be less likely a default candidate than sovereign bonds not only for the
attachable assets theme but too for the sovereign collectiv
collective action clauses. PDVSA does not have CACs and the
sovereign does; PDVSA issues require unanimity to restructure bond payments, but many of the sovereign issues
(2027s, 2019s for example) contain collective action clauses requiring a 75% majority to agree to a restructuring
that
hat is binding on all holders. In our view, however, iif Venezuela's
's options were exhausted in an environment of
additional downside to oil prices and were forced to miss bond payments (not our base case),
case) it would not be a
calculated decision to default on sovereigns with CACs for example (implying a higher recovery rate), but rather a
disorderly and indiscriminate bond incapacity
incapacity.
FX Platform Review and Analysis: Despite the FX adjustments, given the maintenance of FX controls with the
punitive and distortive 6.3/USD official rate, Venezuelan authorities continue to sell now-scarcer
scarcer petro-dollars
petro
at
far less than market value in
n effectively a very expensive subsidy for the imports of basic goods such as food and
medicine. These items, due
ue to the ongoing price, capital and FX controls, however, continue to face enormous
scarcity leading to dire consequences widely reported particularly at hospitals (lack of life
life-sustaining
sustaining medicines,
medical supplies, etc) with supermarkets devoid of basi
basic food items and the infamous lines and rationing resulting.
resulting
With the introduction last month and the implementation this month of SIMADI, Venezuela now has 3 official FX
rates plus the informal market:
1) Sicad I and Sicad II were combined into one "SICAD", priced at 12/USD. This FX rate is intended for what the
government deems as less urgent needs such as travel and retail items. This new platform is reported to trade via
official brokers in cash and bonds and include exchanging bolivars for convertible USD-denominated
nominated instruments.
2) The official rate,, remains at a highly distortive 6.3/USD that continues contribute to enormous fiscal deficits in
addition to lending to corruption, particularly in the form of the infamous over
over-invoicing.
invoicing. A huge subsidy,
petrodollars are basically sold at below market value despite the large deficits and significantly decreased revenue
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from the same oil. It is used to buy food and medicine, covering a fraction of actual demand, leading to the
immense and growing scarcities of basic food items and medical supplies. We think the administration will hang on
to this rate for as far as pockets can be stretched and ahead of National Assembly elections later this year.
VENEZUELA - Oil Production (b/d) Over Past 10 years, Crude Prices
Sources: Bloomberg, Bulltick
2910
140
2810
120
2710
100
2610
2510
80
2410
60
2310
40
Oil Production Data '000s barrels/day (left axis)
2210
20
2110
Venezuela Crude Oil Basket Price US$ (right axis)
2010
0
Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07
Mar
Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14
3) The black market is unofficially reported today to be trading at 189/USD near its record weak level of
190.75/USD unofficially reported on February 11th, 2015.
4) SIMADI: Individuals can exchange up to $300 per day, a maximum of $2,000 per month not to exceed $10,000
per year with hours of operation from 8:30am - 11:30am daily. In theory
eory there is no cap to corporations, although
Dollar supply will clearly be a factor. This foreign exchange mechanism launched February 12th and since then the
BCV has reported three SIMADI rates of exchange, which, as expected, collapsed towards the blac
black market rate,
trading at 170, 174.5, and 172 according to official data. The Central Bank, SUNAVAL (Superintendencia
Superintendencia Nacional
de Valores) or SUDEBAN (Superintendencia
Superintendencia de las Instituciones del Sector Bancario
Bancario)) can at any moment block or
cancel in whole or in part any order without providing reason or motive within 48 hours of the FX operation.
In addition to the FX changes, in his announcement last month, President Maduro also noted the possibility of
increasing domestic gasoline prices. To sweeten the de
deal, he threw in a 15% increase in wages and pensions,
promises of additional housing and other goodies. The necessary near-term
term measures in our view are: end
Petrocaribe give-aways,
aways, increase domestic gas prices (politically toxic so unlikely), eliminat
eliminate
e the official FX rate,
which is wasting the more scarce petrodollars, and devalue further. A CITGO sale would increase USD income but
drop PDVSA prices further.
Total Debt Servicing Sovereign
PDVSA
Total (RHS)
2015
$
4.0 $
5.9 $
9.9
2016
$
5.2 $
5.5 $
10.7
2017
$
6.5 $
7.2 $
13.7
2018
$
5.2 $
1.9 $
7.1
2019
$
6.4 $
6.8 $
13.1
Average
$
10.2
USD billions
Sources: Bloomberg, Bulltick
Debt profile Updating the amortization profile over the next five years, through 2019, with an average $10.2
$10. billion
in average debt amortizations 2015 - 2018, the amortization schedule is relatively smooth over the coming years.
Venezuela's overall debt position compared to its GDP is not overly onerous and its external debt composition
relatively
tively low at 35%. Venezuela's net debt/GDP estimated at 24% and total debt/GDP of 30.3%. This compares to
Brazil at 57.1% of GDP, Colombia at 35% of GDP, Panama at 40% of GDP.
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Venezuela 2027s. Yield (%) Sources: Bloomberg, Bulltick
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Nov-12
Jan-13
Mar-13
May-13
Jul-13
13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Despite
espite the necessity of more aggressive economic adjustments, President Madu
Maduro
ro appears weak making more
aggressive adjustments complicated particularly with approval ratings of some 25% and ahead of this year's
midterm elections. We hold our view that Venezuela can muddle through this year without entering into default, a
view contingent
tingent on the price of oil and the use of alternative mechanisms for short
short-term
term funding, examples of
which we have already seen: additional Chinese loans, repackaging and sale of Petrocaribe debts (Dominican
Republic and Jamaica deals), incremental devalu
devaluations, plumping up of reserve assets with their re-definition,
re
and
potential asset sales.
VENEZUELA--5-Year
Year Spread Versus Argentina (bps). Sources: Bloomberg, Bulltick Capital
Markets
4000
3000
ARGENTINA WIDE TO VENEZUELA
2000
1000
0
-1000
VENEZUELA WIDE TO ARGENTINA
-2000
-3000
-4000
-5000
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
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Nov-13
Feb-14
May-14
Aug--14
Nov-14
Feb-15
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