Venezuela said it would replace its 100-bolivar note. Venezuela’s largest bill, it is worth pennies on the dollar.Dimitra DeFotis for Barron’s
” … It comes somewhat as a surprise on the official announcement from the Finance Ministry of $5 billion new sovereign issuance @ 6% coupon 2036 sinker placed directly with stated owned bank Banco de Venezuela via a Chinese bank sole manager … The unusual “physical delivery” listing on Bloomberg also implies a non-market based transaction with the previous 6% PdVSA 2022 private placement not ever having traded in the secondary market (from our experience) … The external indebtedness from the sovereign, unlike [state-controlled oil company] PdVSA, requires legislative approval and hence questions the legal framework of this recent issuance … the opposition has not endorsed the issuance so there would be obvious legal risks if you assume a political transition before the maturity in 2036. There is also decreasing optionality for additional sovereign issuance under the now opposition-controlled legislature and the legal limbo of the 2017 budget … The overhang of illegality makes it difficult to leverage this issuance for new funds (Rosneft?) or to finance arrears (importers?). It’s dubious that Rosneft (ROSN.Russia, ROSN.UK and OJSCY) would initially accept Citgo equity a few weeks ago and now accept only sovereign debt issuance as collateral for new funds … The legal risks would imply a deeper discount to the sovereign curve with already minimal if any market demand for new issuance …”

“PdV’s agreement with Rosneft means that 100 percent of Citgo is now pledged as collateral against distressed parent firm PdV’s debts … It is not clear yet if the previously undisclosed loan agreement between PdV Holding and Rosneft violates covenants relating to other debt obligations imposed on Citgo by its parent firm PdV …”