Citigroup to Top Venezuela Bond Ranks With $3 Billion PDVSA Debt Offering

Citigroup Inc. is set to overtake Deutsche Bank AG and Credit Suisse Group AG as the top underwriter of Venezuelan debt this year after managing state oil company Petroleos de Venezuela SA’s $3 billion bond sale.

PDVSA’s offering is the biggest by a company in Venezuela this year and allows New York-based Citigroup to move to No. 1 in the bond rankings for the first time in the country, according to data compiled by Bloomberg. Deutsche Bank and Credit Suisse are tied for second place at $1.5 billion each after co-managing an August government debt sale.

The oil producer and President Hugo Chavez are stepping up bond sales as PDVSA finances exploration projects, while the government seeks dollars for importers struggling with currency constraints and to pay for social programs. The presence of a local investment team in Venezuela helped Citigroup secure the PDVSA transaction, said Russell Dallen, head bond trader at Caracas Capital Markets at BBO Financial Services in Miami.

“It’s about rotation, institutional sponsorship, who has more access to institutional money or made the best pitch,” Carlos Fuenmayor, executive director of investment bank BancTrust & Co., said in a phone interview in Caracas.

Deutsche Bank, Germany’s biggest bank, and Credit Suisse, Switzerland’s second-largest bank, declined to comment on the PDVSA deal and underwriting rankings in Venezuela.

Government Debt Sale

Citigroup and Deutsche Bank shared the top spot in Venezuelan underwriting last year after co-leading a $5 billion government sale of securities maturing in 2019 and 2024. Citigroup hadn’t managed a Venezuelan government bond sale since 2005 before that.

Venezuelan bond sales are set to fall this year from the $11.3 billion of securities sold in 2009 after a plunge in oil revenue.

The extra yield investors demand to own Venezuelan government bonds instead of U.S. Treasuries fell 17 basis points, or 0.17 percentage points, today to 1137, according to JPMorgan Chase & Co.’s EMBI+ index. The government’s average dollar-bond yield rose 10 basis points to 13.75.

PDVSA brought in Citigroup, the third-biggest U.S. bank by revenue, to sell $3 billion of bonds maturing in 2017 and oversee a debt swap this month that may be worth up to $3 billion. PDVSA, the world’s fourth-largest oil producer, last hired an overseas investment bank in 2007 when it issued $7.5 billion of securities with ABN Amro Bank NV.

2009 Delays

The $3 billion bond sale will be Citigroup’s largest issue in emerging-market countries since at least 2007, when the company handled a $1.5 billion debt offering by the Peruvian government, according to Bloomberg data.

Citigroup may have been hired after Caracas-based PDVSA sold $6.3 billion of bonds with the central bank last year and faced delays registering the securities with settlement agencies without the assistance of an underwriter, said Dallen.

The 2017 bonds will also be sold under New York law, which requires an investment bank and will help lower borrowing costs, said Asdrubal Oliveros, director of economic research at Ecoanalitica in Caracas.

“PDVSA didn’t want to repeat their strategy from last year, when they sold bonds under local law at a discount and had a tough time selling them abroad,” Oliveros said. “That’s why they hired a foreign bank to register the bonds in the international market.”

PDVSA President Rafael Ramirez was traveling and unavailable to comment for this story, said a company official, who declined to be named in accordance with policy.

Investor Presentations

Citigroup organized presentations in London, New York and Los Angeles to present PDVSA’s financial results and development plans to investors, a PDVSA official who isn’t authorized to speak publicly, said.

Anthony Ingham, a Citigroup spokesman, declined to comment.

“They’re definitely going all out,” Dallen said of Citigroup. “This is the first roadshow that we’ve seen in some time from Venezuela or PDVSA.”

Chavez and PDVSA are selling bonds in part to supply dollars to importers amid controls implemented in 2003 to slow capital flight. Currency and price controls have hindered industrial production while nationalizations have dried up foreign investment in the country.

PDVSA is also looking to finance crude exploration and production projects with foreign partners to cut declining output and tap the heavy oil of the Orinoco Belt.

Crude Exploration

The bond offering may rise to as much as $4.5 billion on surging demand and after the central bank freed up more liquidity in the financial industry by lowering reserve requirements on Oct. 20, Oliveros said.

As Citigroup manages more debt sales in Venezuela, Frankfurt-based Deutsche Bank is the top underwriter of Latin American international bonds this year with 13.5 percent of market share for a total of 33 issues worth $9.95 billion, according to data compiled by Bloomberg. JPMorgan of New York is second and Citigroup is sixth, before the PDVSA sale, with 7 percent of the market share for a total of 20 issues worth $5.18 billion.

“Our strategy across Latin America has been to reinforce our debt capital markets effort to cover the region as a whole better than the competition,” Alberto Ardura, managing director of debt capital markets for Latin America at Deutsche Bank, said in a telephone interview from New York. “We have the highest number of recurrent clients.”

To contact the reporters on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Corina Rodriguez Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.