Venezuela will offer $3 billion of bonds in the local market, swelling dollar debt sales this year to $7.2 billion, as the country seeks to finance spending and meet investor demand for foreign currency.
The government will sell the 11.75 percent bonds due in 2026 to local investors, who will pay with bolivars at the official foreign-exchange rate of 4.3 bolivars per dollar, according to a statement posted on the Public Credit Office’s website. Credit Suisse Group AG (CSGN) and Evrofinance Mosnarbank SA will manage the sale, the statement said.
“This has taken the market by surprise,” Jeff Williams, an emerging-market debt strategist at Citigroup Inc. in New York, said in a phone interview. “People weren’t expecting a new Venezuela issue this year, so in that sense it’s negative for the market.”
The $7.2 billion of debt to be sold by the government this year is the most on record, according to data compiled by Bloomberg. Venezuela, which has the highest borrowing costs of major emerging-market economies after Belarus, sells the bonds to provide foreign currency to local investors who are unable to buy dollars under President Hugo Chavez’s eight-year-old controls. Investors can re-sell them in overseas markets at a discount to obtain dollars. The securities will have a sale price of 95 cents on the dollar, the government said.
The sale will bring the total issuance between Venezuela and state oil company Petroleos de Venezuela SA to about $15.2 billion this year, a figure that surpasses the total amount sold by the rest of Latin American governments in the international market combined, Barclays Capital said today in a note.
“It is hard to explain why Venezuela has issued these bonds at a time when conditions in the international market have deteriorated,” analysts Alejandro Arreaza and Alejandro Grisanti said in the note. The government seems “willing to issue as much as possible” ahead of the 2012 elections, they wrote.
Yields on the government’s benchmark 9.25 percent bonds maturing in 2027 rose four basis points, or 0.04 percentage point, to 15.01 percent at 4:24 p.m. Caracas time, according to prices compiled by Bloomberg. The price fell 0.18 cents on the dollar to 65.45 cents.
The extra yield investors demand to own Venezuelan government bonds instead of U.S. Treasuries fell eight basis points to 1,296, according to JPMorgan Chase & Co.’s EMBI+ Index.
The Finance Ministry will begin receiving orders for the bonds on Oct. 13 and will announce the results of the sale on Oct. 17, the statement said. Venezuela will offer 40 percent of the bonds to import companies registered with the Foreign Exchange Board, known as Cadivi, while the remaining securities will be sold to individuals, banks, non-Cadivi companies and pension funds, the statement said.
The government is tapping credit markets for a second time this year as Chavez seeks to win a third consecutive six-year term next October. The sale also comes amid a surge in the central bank’s scarcity index and an inflation rate that rose for a fourth consecutive month in September to 26.5 percent, the highest of 78 economies tracked by Bloomberg.
Petroleos de Venezuela Bonds
State oil company PDVSA has sold $7.93 billion of bonds this year including new issuance and the reopening of previous bonds.
“This sale will create more pressure on the debt curve,” said Alberto Cardenas, head of strategy at Caracas-based investment bank BancTrust & Co. “It’s likely that PDVSA will come to market again at the end of this quarter.”
Venezuela’s average government dollar bond yields have fallen 61 basis points since Oct. 4 to 15.21 percent yesterday, according to JPMorgan. The average yield was 12.98 percent on Aug. 2.
The central bank may receive a portion of the bonds to sell through its Sitme currency market, where banks trade dollar bonds on behalf of clients to finance imports at an exchange rate of 5.3 bolivars per dollar, said Asdrubal Oliveros, director of Caracas-based consulting firm Ecoanalitica.
“The government picked a poor moment to sell bonds,” Oliveros said. “Venezuelan bond prices are low right now due to risk aversion and the government didn’t do any work leading up to the sale to reduce borrowing costs.”
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