Petroleos de Venezuela SA will sell $4.5 billion in bonds this week in the first issuance by a state entity since May 2012 as the government seeks to bolster shrinking reserves and curb the world’s fastest inflation.
PDVSA, as the state oil company is known, will sell debt privately to selected state and private buyers to pay off debts and boost output, company President Rafael Ramirez told reporters in Caracas today. The securities will have several maturity dates, he said, without providing more details.
The government is seeking to boost dollar supply to pay for imports and offset a shortage of locally produced goods that has helped spur 54 percent annual inflation. President Nicolas Maduro dispatched the military to take over a retail chain last weekend and warned other businesses to cut prices to “fair” levels as the country gears up for municipal elections next month and the Christmas shopping season.
“The timing is absolutely critical because of the local elections on Dec. 8,” Siobhan Morden, the head of Latin American strategy at Jefferies Group LLC, said by phone from New York. “Maduro needs to reduce the inflation and boost imports, which is what this issuance is intended to go toward.”
The yield on the country’s benchmark bonds due 2027 soared 0.79 percentage point to 13.82 percent at 4:49 p.m. in New York, the highest since January 2012, as Maduro vowed in a national address to tighten price controls and punish speculators.
“PDVSA is issuing at a very bad moment and almost surely will have to pay a high coupon of between 12 and 13 percent, because the market is reacting negatively to Maduro’s announcements,” Asdrubal Oliveros, director of Caracas-based consultancy Ecoanalitica, said in a phone interview today.
South America’s largest oil producer is likely to sell most bonds to the central bank, which would gradually resell them to international investors, as in previous issues, Morden and Oliveros said.
Venezuela’s international reserves fell to $21.3 billion today, the lowest level in nine years. Scarce dollars have limited the supply of products ranging from medicine to milk in a country that imports about three-quarters of the goods it consumes.