Venezuela to Announce Terms of $3 Billion Bond, First Sale Since October

Venezuela will announce today the terms of a planned sale of $3 billion of dollar-denominated bonds to local investors, the OPEC country’s first such offering since October, Finance Minister Jorge Giordani said.

“There’s sufficient liquidity in the internal market to guarantee the success of the bond sale that will be approximately $3 billion,” Giordani said yesterday on state television. “Along with the $1.5 billion we recently paid, Venezuela is proving once more its capacity to pay its debt.”

The bond sale forms part of the 45 billion bolivar (10.5 billion) debt plan for 2010 including refinancing, amortization and government spending, Giordani said. The government has sold bolivar-denominated bonds and treasury bills this year and will continue to sell debt in the remaining months of the year, he said, without specifying the currency.

The $3 billion of bonds will mature in 2022, said an official at the Finance Ministry, who declined to be identified because he isn’t authorized to speak publicly, on Aug. 6.

Concern the sale will create a bond-supply glut sparked a rout in Venezuelan dollar debt on Aug. 6, stemming a two-month rally. Yields on the government’s benchmark 9.25 percent bonds maturing in 2027 rose 37 basis points to 13.13 percent in New York, according to JPMorgan Chase & Co. The price fell 2 cents on the dollar to 73.8 cents.

The government’s average dollar-bond yield plunged 302 basis points, or 3.02 percentage points, to 13.19 percent from a one-year high of 16.21 percent on June 8, according to JPMorgan indexes.

Last Sale

Venezuela last sold dollar bonds in October, when it issued $5 billion of notes due in 2019 and 2024, in part to meet investor demand for foreign currency and to bolster the bolivar. Venezuelans who buy the bonds often re-sell the securities overseas to obtain dollars and circumvent currency controls.

Venezuela and state-run oil company Petroleos de Venezuela SA sold $11.3 billion of bonds last year.

The bonds may be used to relieve dollar demand by large corporations and importers after President Hugo Chavez closed the unregulated currency market in May in a bid to slow inflation and capital flight.

Companies used the unregulated market, operated by brokerages, to buy dollars when they couldn’t get government approval to purchase currency at the official rates of 2.6 and 4.3 bolivars per dollar.

Debt Load

The central bank now operates a currency market where companies buy and sell dollar-denominated securities at an average exchange rate of 5.3 per dollar. Companies are limited to $50,000 a day and $350,000 a month.

The market, known as Sitme, has been supplied with mostly dollar bonds in portfolios of private banks and has traded more than $1 billion since opening on June 9.

Chavez has said that Venezuela’s debt to gross domestic product ratio is low compared with the U.S., Europe and other Latin American countries. The country’s ratio is below 20 percent and there’s room to take on more debt to reach about 30 percent of GDP, he said.

“We have one of the lowest debt-to-GDP ratios in Latin America,” Chavez said yesterday during his weekly television program. “We still have plenty of room to take on debt.”

To contact the reporter on this story: Daniel Cancel in Caracas at

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