Cablegate: Pdvsa Announces Usd 3 Billion Bond Issuance

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DE RUEHCV #1340 2892014
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P 162014Z OCT 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3844
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 001340

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ENERGY FOR CDAY AND ALOCKWOOD
HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MKACZMAREK
NSC FOR DRESTREPO AND LROSSELLO
USDOC FOR 4332 MAC/ITA/WH/JLAO

E.O. 12958: N/A
TAGS: ECON EFIN EPET VE
SUBJECT: PDVSA ANNOUNCES USD 3 BILLION BOND ISSUANCE

REF: A. CARACAS 1283
B. CARACAS 852
C. CARACAS 1228
D. CARACAS 1270
E. CARACAS 1311

1. (U) Petroleos de Venezuela (PDVSA) announced on October
16 terms for a USD 3 billion bond issuance. The issuance,
which had been widely expected, is a combination of three
"Petrobonos" maturing in 2014, 2015, and 2016 with coupons
ranging from 4.9 to 5.125 percent. The terms of the issuance
are similar to those of the recent sovereign bond issuance
(ref A) in that they set purchase price of 138 percent of
face value, with purchases made in bolivars at the official
exchange rate of 2.15 Bs/USD. (Note: If PDVSA issues USD 3
billion worth of face value of the bonds at this price, PDVSA
will raise roughly Bs 9 billion (USD 3 billion x 2.15 Bs/USD
x 138 percent). End note.) According to the terms of the
issuance, the proceeds will be directed to investments
outlined in PDVSA's "Plan Siembra Petrolera." (Note: PDVSA
used at least part of the proceeds of a USD 3 billion
Petrobono issuance in July to pay part of its debts to
oilfield services companies (ref B), and it is likely part of
the proceeds of the current issuance will be used for this
purpose. End note.)

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Comment
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2. (U) By issuing dollar-denominated bonds purchased in
bolivars, PDVSA is supporting the Venezuelan government's
(GBRV's) efforts to lower the parallel foreign exchange rate,
which is currently 4.9 Bs/USD (down from almost 7 Bs/USD in
early August). Ref C outlines related GBRV efforts and
provide's post's analysis of the reasons for and the
limitations of this strategy. Ref D discusses the GBRV's and
PDVSA's overall debt situation.

3. (SBU) This Petrobono offer is less attractive financially
than the recent sovereign issuance, which offered buyers the
opportunity for an immediate profit of almost 20 percent (ref
E). According to one calculation, the implicit exchange rate
of the sovereign issuance was roughly 4.3 Bs/USD. (Note:
The implicit exchange rate is calculated by dividing the Bs
spent in purchasing a given quantity of bonds by the USD
acquired upon immediate sale of the bonds in international
markets. It is thus dependent on the price/yield of the
bonds in international markets, a value which is unknown
before the bonds are actually sold. End note.) While we
have not seen an estimate of the implicit exchange rate of
this Petrobono offer to date, it is almost certain to be
higher than 4.3 Bs/USD because PDVSA bonds yield more than
sovereign bonds (i.e., they sell for a lower price). Also,
the more debt PDVSA and the GBRV issue, the more
international markets will be saturated and the less appetite
international investors will have for new debt. As a manager
at one of the largest emerging market funds commented to
Econoff October 16 before the terms were announced, "The
world is in love with emerging market (debt) except with
Venezuela on account of that country's insistence on managing
money supply by issuing more debt."
DUDDY

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