Market Awaits Venezuela’s Delayed Debt Issuance

Venezuela’s delayed foreign debt issuance this year has left many in the market expecting a large bulk sale sometime before the October presidential elections. Barclays capital expects the country to issue dollar-denominated instruments sometime during the second quarter, especially now that President Hugo Chavez issued a public decree eliminating the government debt ceiling for the year. “We see increasing pressures to issue in the coming months, particularly from the exchange market and after this reform, the barriers that could have limited the government to issue have been eliminated,” the bank says. Prior to the change in the finance law, Venezuela had a debt ceiling that limited the country’s issuance this year to a further at least $12bn, at least $5.5bn of that in dollar-denominated debt. At this point Chavez has plenty of money to cover state spending plans but an appreciating dollar in the parallel market is pressuring the government to issue dollar-denominated IOUs. The unofficial exchange rate has lately reached VEB9 per dollar, up from an average of VEB5 per dollar last year, by Barclays’ estimates. The sovereign has financed almost $8bn in Bolivar-denominated debt issued locally year to date, a speed of issuance that could cause the sovereign to run into the congress-approved debt limit for the year sometime soon. Dollar-denominated debt issuance by the state controlled oil company PdVSA, however, is not subject to that lawmaker dictated limit and Barclays analysts expect the oil company to play a part in meeting the state’s dollar-debt issuance plans this year.