Category: Venezuela

The announcement Tuesday that Venezuela plans to issue $4.2bn in RegS only 11.95% 2031s hardly came as a surprise after rumors of such a deal had already sent secondary levels south. Indeed, many of the details circulated over the last week proved to be true, with the only slight exceptions such as talk of a 12% coupon. As is standard practice for such deals, the sovereign has set the price beforehand, in this case par, and will leave the books open to allow locals to buy at an FX rate of VEB4.30/1USD. Grey market levels of 81.50-82.50 were already being quoted yesterday as foreign accounts calculated what would be fair value on the bonds once they were free to trade in the international market after a 42 day seasoning period. At 82.50, the amortizer would offer a yield of around 14.37%, according to one investor. “All this will be sold through the Sitme (the state-run FX platform) at VEB5.30/1USD, which implies a slightly lower secondary price [than 81.50-82.50],” says RBS strategist Siobhan Morden. “Irrespective it is cheap versus the curve.” For instance, Venezuelan benchmark 2027s were trading Tuesday afternoon at 74.25, or at a lower 13.125%-13.05% yield, even after selling off in the wake of supply fears. With a $4.2bn size, the new 2031s will become a new benchmark for investors and will provide an attractive instrument to take a view on regime change as the 2012 presidential elections approached, Morden adds. If nothing else the11.95% coupon offers alluring carry. Indeed the deal is expected to go well. As one London-based investor points out, appetite for Venezuela debt remains robust in the context of new inflows to EM bond funds and the resilience of high yield EM debt. The B2/BB-/B plus bond is governed by New York law and will be registered in Luxembourg. The RegS bond will amortize equally on August 5, 2029, 2030, and 2031. Deutsche Bank was mandated as lead, but perhaps more interestingly the government has also selected Russia’s Evorfinance Mosnarban

Talk of an imminent Venezuela bond continued to swirl Wednesday, with RBS citing local rumors about an up to $4bn 12% 2031. The specific details associated with market chatter suggests that there may be some weight behind the rumors, though several shops including RBS say the sovereign is under no pressure to issue. If the sovereign were to issue a new 2031, RBS calculates that it will likely be priced at 101.00, but with a fair value yield to maturity and secondary level of 14.8% and 82.20, respectively. Such USD deals are typically sold at the official FX rate to locals who arbitrage against the weaker parallel rate by selling the bonds to foreigners at a steep discount. It is thought that the government will opt for a longer dated bond to smooth out debt maturities. Nomura, however, believes that the issuer may well be targeted at importers in need of dollar assets and could come in a single transaction. However, the shop has its doubts about an imminent issue partly because the Minister of Planning and Financing Jorge Giordani has expressed opposition to such issues. That said, Nomura expects more supply later in the year as the government seeks to replenish the Sitme, the state-run FX system.

Venezuela is expected to issue an additional $5bn-$6bn in debt between Pdvsa and the Republic, according to a report by JPMorgan. “We would not expect a fundamental change in the overall policy framework that uses excessive USD issuance to locals to help prop up an overvalued FX rate until after the 2012 elections,” the bank says in the report. New bonds are expected to come wide by as much as 100bp. The 5.3 implied exchange rate requires the sovereign to issue relatively high-priced dollar bonds, though the finance ministry could potentially balk at the need for high coupons, according to the report. Pdvsa reopened $1.8bn of its 2013 bonds at the end of June, just weeks before paying the remaining $2.45bn maturity on its 2011s.

Venezuelan oil company PDVSA announced Thursday a $1.783bn retap of its 8% 2013 that was sold through a private placement to the central bank. According to Barclays, the central bank could potentially try to use the new supply to swap it for existing 2011s held by investors who declined to participate in a similar transaction earlier this year. The market had expected a reopening of the 2022s, but investors may now be willing to hold the 2013s which mature after the presidential elections next year, says Barclays. Talk that President Hugo Chavez may be unable to run due to poor health has raised hopes of regime change and caused substantial spread tightening in sovereign paper and CDS.