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Cablegate: Bond of the South Iii Relaunched

VZCZCXYZ0006
RR RUEHWEB

DE RUEHCV #1902 2682147
ZNR UUUUU ZZH
R 252147Z SEP 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 9795
INFO RUEHAC/AMEMBASSY ASUNCION 0881
RUEHBO/AMEMBASSY BOGOTA 7515
RUEHBR/AMEMBASSY BRASILIA 5989
RUEHBU/AMEMBASSY BUENOS AIRES 1677
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 0865
RUEHMN/AMEMBASSY MONTEVIDEO 0907
RUEHQT/AMEMBASSY QUITO 2679
RUEATRS/DEPT OF TREASURY
RUCPDOC/DEPT OF COMMERCE

UNCLAS CARACAS 001902

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN VE
SUBJECT: BOND OF THE SOUTH III RELAUNCHED

REF: CARACAS 1638

1. This message is Sensitive but Unclassified, please treat
accordingly.

2. (U) The Ministry of Peoples Power for Finance (MPPF)
announced on September 24 that the price of the USD 1.2
billion Bonos del Sur III (Bond of the South III) would be
set at 108 percent of face value. The combo bond consists of
USD 600 million in Boden 15s from Argentina with a 7 pct
coupon, and USD 600 million in Venezuelan TICCs (Venezuelan
Secured Interest and Principal Certificates) with a 7.125 pct
coupon. The Boden 15 half will mature October 3, 2015 and
can be sold for dollars on secondary markets, while the
Venezuelan TICC, although dollar denominated, can only be
traded in bolivars at the official rate of Bs 2,150/USD (but
serves as a hedge instrument against any future devaluation).
According to a MPPF press release,the proceeds of the issue
will be used to recover the money spent one month ago by the
BRV to purchase the Boden 15 and to amoritize 2007 debt.

3. (U) Orders will be taken until noon Friday, September 28.
The minimum purchase available is for USD 3,000, paid in
bolivars at the official exchange rate. Auction results will
be announced on October 1. This issue, unlike the
unsuccessful August issue, is expected to sail through and
will likely be oversubscribed given the huge demand for
dollars stemming from continued political uncertainty in
Venezuela, and a slowing in the delivery of dollars by CADIVI
(The Foreign Exchange Control Board) to the private sector.
(Note: Although CADIVI dollar authorizations have slowed over
the last several months,average daily authorizations remain
at record highs given the import boom. Average daily
authorizations for the year are USD 159 million compared to
USD 99 million for 2006.)

4. (SBU) Comment: Given the relatively small size of the
issue, we do not expect it have a significant impact on the
parallel exchange rate which is hovering around Bs.4,900/USD.
The obvious attraction of these combo bonds is that they
allow local investors to move into dollars by selling the
Argentine portion of the bond on secondary markets. It is
still too early to tell what will be the implicit dollar rate
of the Argentine portion of the bond, although analysts are
speculating it will be between Bs.3,700 - 3,900/USD. This
implicit exchange rate still remains an attractive investment
for Venezuelans as the other option would be to go through
the bond swap market (which establishes the parallel rate)
and pay upwards of Bs. 4,900/USD.

DUDDY

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