miércoles, 18 de agosto de 2010

Wall Street Journal: Venezuela Issues $3B In Dollar Bonds; Demands $9.2B

CARACAS, Venezuela -- Venezuela on Monday sold all of the $3 billion in dollar-denominated bonds that it offered to local investors last week to feed pent-up demand for U.S. currency.

The bonds were priced at par, or 100% of face value, with a 12.75% coupon, and were sold in the local currency but could be re-sold abroad for dollars. Demand for the 2022 bonds, Venezuela's first sovereign debt sale in 10 months, reached a heavy $9.2 billion, or 307%, the Finance Ministry said in a statement Monday.

Economists say the decision to allow locals to buy the bonds in bolivars and exchange them for greenbacks could help Venezuela's recession-wracked economy begin to get back on its feet. Critics of the government of President Hugo Chavez say the decision to provide cheap dollars to locals by way of the bond sale also is aimed at appeasing voters ahead of key congressional elections next month, in which the ruling socialist party hopes to maintain a majority in the National Assembly.

Venezuela's economy shrank 3.3% last year and is likely to retreat again in 2010 after contracting 5.8% in the first quarter due to electricity shortages and lower oil prices that took their toll on this OPEC-member nation.

Many Venezuelan importers and other companies struggle to access dollars due to a restrictive foreign exchange policy that only provides greenbacks to those that can demonstrate a valid need for them.

Based on the terms of the bond sale, analysts said buying the bonds was a great way for Venezuelan importers and individuals to get around those rules and get their hands on U.S. currency at a good rate. Re-selling the bonds abroad for dollars is likely to provide an implied exchange rate of somewhere around VEF5 bolivars for $1.

That rate is close to the most expensive of three official exchange rates set by the government, which range from VEF2.6 for $1 to VEF5.3 for $1. But access to dollars at any of those official rates requires specific government approval, which is difficult if not impossible for many to get. As such, the only way for many in Venezuela to access dollars is through the illegal black market, where it costs 8 bolivars or more for $1.

Though the bond sale was seen as a positive for the local economy and local investors in need of greenbacks, analysts say the issue raises some concerns for foreign investors who may consider buying the bonds in the secondary market.

"If the Republic is willing to continue issuing, even with high coupons, simply to satisfy the needs of importers, then at some point the concern will shift from Venezuela's willingness to pay to the country's ability to pay," said Russ Dallen, an analyst at BBO Financial Services, which has offices in Caracas.

While foreign investors in Venezuelan debt are concerned about the policies and rhetoric of Chavez, a firebrand socialist and anti-U.S. government leader, the fact that his government has never defaulted on debt during his 11 years in power alleviates many of those worries.

Dallen noted that the new Venezuela 2022 bond is likely to be under pressure in the first few weeks of trading because local investors are most likely going to just turn around and sell it for dollars, creating downside pressure on prices.