PDVSA 2022 Bonds Fall on Central Bank Plan to Sell Securities

Petroleos de Venezuela SA bonds maturing in 2022 fell the most in two weeks after a central bank director said more of the securities will be offered to investors in a state-run currency trading system.

Yields on the PDVSA bond that matures in 2022 rose 14 basis points, or 0.14 percentage points, to 16.42 percent after central bank director Armando Leon said in an interview yesterday in Caracas they would be sold on the Sitme market for the first time. The yield on PDVSA bonds maturing in 2017, which are currently offered in Sitme, fell 5 basis points to 15.26 percent after Barclays Capital recommended buying following Leon’s comments.

Leon said the expanded offering of bonds issued by PDVSA, Venezuela’s state oil company, will help maintain a daily supply of dollars of $30 million to $40 million in Sitme, the currency trading system created by the central bank after President Hugo Chavez banned foreign-exchange dealing last May.

“That’s the principal reason why you’re seeing one bond rising and another falling” Alejandro Grisanti, Latin America economist at Barclays said in a telephone interview from New York. “The bank is about to finish selling the 17’s and will start selling the 22’s next.”

Venezuela will probably weaken the exchange rate in the central bank-administered currency market in the “medium term,” as the government seeks to avoid a boom in imports at the expense of national production, Leon said yesterday in an interview in Caracas.


The central bank plans to maintain the exchange rate in Sitme, as the exchange market is known, at 5.3 bolivars per dollar for now, Leon said. He didn’t provide details about the timing or size of any eventual exchange rate adjustment.

Chavez devalued the bolivar for the second time in less than year in January to increase the amount of bolivars he receives from oil sales as he looks to ramp up spending ahead of elections next year. Last year, he shut down an unregulated bond market after accusing brokerages of driving inflation through currency speculation and replaced it with Sitme.

“It is not convenient to fix an exchange rate for too long because the economy moves on,” Leon said. “In the medium term, it will probably be adjusted.”

Materials, Machinery

The currency exchange market offers bonds to local importers who resell them in a secondary international market in exchange for dollars. Since June, the market has sold $8.1 billion in bonds at a fixed exchange rate of 5.3 bolivars per dollar.

“The government appears to be focused completely on generating the maximum stimulus possible to accelerate economic growth ahead of the election,” Barclays economists Alejandro Arreaza and Grisanti wrote in a report yesterday after Leon’s interview was published.

International reserves held by Venezuela, South America’s biggest oil producer, stood at $26.8 billion as of May 16, down from $42.2 billion in January 2009 even as the price of crude oil has more than doubled. By comparison, Brazil’s reserves now stand at $330.54 billion, up from $188 billion.

Venezuela experienced a surge in imports four years ago as a result of an oil boom that flooded the market with dollars, said Leon. Weakening the exchange rate for the bolivar in Sitme would increase the cost of imports and thereby encourage local production, said Leon.

“The policy now is to supply currency for raw materials and machinery with the aim of strengthening the manufacturing and commercial sectors,” Leon said.

Expanded Offerings

The Jan. 1 devaluation involved weakening the preferential exchange rate reserved for “essential” goods such as food and medicine, unifying its two official exchange rates. The Foreign Exchange Commission, known as Cadivi, sells dollars at 4.3 bolivars per dollar.

Leon, 49, said Venezuela will expand its offering of dollar-denominated bonds it sells in a bid to maintain the average $30 million to $40 million it injects daily into the central-bank administered foreign exchange market.

Private companies have increased sales of bonds in Sitme by 30 percent in the last month, prolonging the stock of bonds the central bank can offer, Leon said.

Growth Horizon

Venezuela’s gross domestic product will expand more than 4 percent in the next two years as manufacturing, commerce and construction grow, and as Cadivi and Sitme increase their offer of dollars, allowing the sectors to import raw materials, Leon said.

Venezuela’s GDP expanded 4.5 percent in the first quarter of 2011, the quickest pace in almost three years, as government spending backed by higher oil prices helped the economy emerge from Latin America’s longest recession faster than expected.

“Economic growth will be solid and will last a long time,” Leon said.

Imports rose 22 percent in the first three months of the year, boosting internal demand as more foreign currency was made available to businesses.

The central bank will not make any further transfers to the off-budget development fund known as Fonden, Leon said.

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