Venezuela’s PDVSA to Sell Up to $5 Billion in Bonds
Petroleos de Venezuela SA said today it will sell to state banks as much as $5 billion of securities due in 2024 with an interest rate of 6 percent. The banks will probably sell the notes to importers, who will then raise dollars by selling them to overseas investors, according to Tamara Herrera, the chief economist at financial research firm Sintesis Financiera.
The bond issue comes after shortages of everything from car parts to pregnancy tests spurred three months of protests against the government of President Nicolas Maduro, leaving 42 people dead. Currency controls imposed under the late President Hugo Chavez have left importers unable to access foreign currency they can use to buy goods overseas.
“We’ll see a more ample supply of dollars from state banks in the coming months,” Asdrubal Oliveros, director of Caracas-based Ecoanalitica, said today in a telephone interview.
In a bid to increase the supply of U.S. currency, Venezuela allowed its bolivar in March to plunge 88 percent on a new market known as Sicad II. State banks are allowed to sell dollar-denominated bonds under the system to companies and individuals, who can then obtain hard currency by turning to the secondary bond market.
PDVSA, as the oil company is known, will sell the bonds at the Sicad II rate of about 50 bolivars per dollar, compared with the official rate of 6.3, according to Herrera.
“This issue will undoubtedly improve PDVSA’s financial standing by allowing it to obtain more bolivars for its dollars,” Herrera said by telephone from Caracas today.
PDVSA may use a portion of the new bond sale to pay commercial debt to providers, Oliveros said.
Venezuela seems to be prioritizing the payment of external creditors over the functioning of the economy, Daniel Volberg, a New York-based economist at Morgan Stanley, said in a May 9 research note to clients. The country’s commercial debt to importers has risen to as much as $13 billion from $9 billion at the start of the year, he wrote.
“Sicad II is helping alleviate the dollar shortage, at least on the margin,” he said. “However, using long-term debt to import consumption goods may not be a sustainable strategy.”
Rafael Ramirez, economy vice president and president of PDVSA, said on May 13 that the government was planning to pay 30 percent of its debt to private companies.
“The government is in default with everyone except bondholders,” Jorge Piedrahita, the chief executive officer at brokerage Torino Capital LLC, said in a phone interview from New York. “We think this issuance will go very fast and won’t be enough to solve the dollar shortage, although the scarcity index will likely fall.”
PDVSA must make payments this year of $4.3 billion on bond principal and interest, while the government is scheduled to pay $3.3 billion, according to data compiled by Bloomberg.
PDVSA’s benchmark notes due in 2017 fell 0.42 cent today to 90.09 cents on the dollar as of 4:01 p.m. in New York. Yields on the securities have fallen 1.9 percentage points since the start of Sicad II on March 24 to 12.09 percent today.
Venezuelan dollar bonds have returned 12 percent this year, compared with an average return of 7.3 percent for high-yield emerging-market countries tracked by JPMorgan Chase & Co.’s EMBIG Diversified index.
The new issue will be available to overseas investors in accordance with SEC Regulation S and Rule 144A, PDVSA said. The company last sold new dollar bonds in November.
PDVSA said in the statement that proceeds from the bond sale will be used to finance corporate and social investments.
“We had been expecting PDVSA to sell $6 billion this year,” Alejandro Arreaza, an analyst at Barclays Plc in New York, said by phone today. “It’s possible that they will still sell more this year.”