jueves, 13 de agosto de 2009

Alejandro Grisanti (Barclays Capital): The buyback is done; What comes next?

During his meeting with Argentine President Cristina Fernandez on August 11, President Hugo Chavez said that he is designing measures to combat the disequilibrium in the FX market (among official and non-official FX rates) that has been fuelling inflation. "We were discussing one night until dawn, the economic team, all the issues of USD speculation and we're taking measures and preparing others in order to re-establish the equilibrium that has been lost, mostly in the last two years," he added, without given any details of the possible measures. Meanwhile, according to El Nacional, Petroleos de Venezuela SA (PDVSA) has bought back USD1.0bn of its own dollar bonds. The newspaper reported that PDVSA purchased USD700mn of the bonds with maturities in 2017, 2027 and 2037 and USD300mn of the petrobonos with a maturity in 2011 that it sold last month. In our opinion, this is the principal reason why Venezuelan assets have been rallying since July 27.
We have two comments. First, the buyback and the announcement made by PDVSA last week that it will start to pay back a $1bn loan from Citgo Petroleum Corp. this month is a signal of better cash flows, given the strong increase in oil prices. Moreover, according to El Universal, PDVSA started to pay dividends last week to the central government and resumed its transfers to Fonden, in the amount of USD25mn per week, for a total expected transfer of USD500mn in 2009.

An important question that investors should ask is why PDVSA has bought its own bonds and, moreover, why it has bought the Petrobonos that were issued just last month. The first possible answer is simply that it is worried about the very high levels of its spreads and decided to buy the bonds to defend the curve and/or to increase the attractiveness of new issuance. If this is the case, PDVSA will likely keep these bonds in its treasury account, waiting for better moments to sell them. A second answer comes if we add to the buyback news the fact that authorities are looking for measures to reduce exchange rate distortions. In this case, PDVSA could be looking to buy its own debt in order to re-sell it to the domestic financial system in VEB, increasing the supply of hard currency to the parallel market and reducing the gap between the parallel market and the official rate. In this scenario, PDVSA will re-sell some of these bonds on a weekly basis to the financial system, but if this is a new policy to reduce the distortion in the exchange rate market, it will need to buy them back in USD to maintain the supply of hard currency to the domestic market. Of course, the new buybacks can be done with any Venezuelan or non-Venezuelan (remember the operation with the Boden 15s) external asset. This first buyback would be interpreted as the working capital of this new policy. We have heard of plans for similar procedures in the past four years to control the parallel rate, but it is possible that it has finally actually happened.

Last but not least, according to information gathered on our last visit to Venezuela, there is coordination between the MEF, Ministry of Planning (MP) and central bank (BCV) with the intention to create a strategy to reduce the parallel FX rate (to 4-4.5 VEF/USD) through the issuance of USD8bn in USD-denominated debt and periodic auctions of USD assets among the domestic financial institutions. We think that it is feasible to reduce the parallel rate (6.7 VEF/USD), but to go bellow 5.0 VEF/USD would be expensive and unnecessary.

On that trip, authorities told us that the external debt will be issued not only by the Executive, but also by other public companies. Indeed, we are expecting issuance by Corporación Venezolana de Guayana (CVG) of USD1.5bn with a gold warranty. Corporación Eléctrica Nacional (CEN) will issue an additional USD1.5bn, while the central government will issue USD2.0bn and PDVSA USD3.0bn. These planned new issuances will have a greater maturity than Petrobonos' recent offering and could have maturities of 4-6 years. The government is trying to push the CVG issuance and/or the CEN one first, but given that both public institutions lack financial statements, we are of the opinion that either PDVSA and/or the government will issue first. We are expecting this new issuance soon (between this month and September).

Should some or all of the issuance materialise, this would affect the Venezuelan and PDVSA curves. Moreover, if the information of El Nacional is true and PDVSA has already bought back USD1.0bn of its external debt but is not planning to buy more, a negative adjustment in prices should be expected.