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Cablegate: Gbrv and Pdvsa Change Terms of Pdvsa Bond Issuance

VZCZCXRO7612
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1362 2952100
ZNR UUUUU ZZH
P 222100Z OCT 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3871
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 001362

SENSITIVE
SIPDIS

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: GBRV AND PDVSA CHANGE TERMS OF PDVSA BOND ISSUANCE

REF: A. CARACAS 1340
B. CARACAS 852

1. (U) PDVSA announced on its website October 22 three
changes related to its USD 3 billion bond issuance originally
announced October 16 (ref A). First, the Ministry of Economy
and Finance (MEF) will exempt from taxation interest paid on
the bonds. Second, the Central Bank (BCV) will not require
financial institutions to count the bonds toward their
position in foreign currency. (Note: The BCV limits a
bank's net position in foreign currency to 30 percent of its
capital. End note.) Third, PDVSA extended the cut-off date
for receiving offers from the afternoon of October 22 to the
afternoon of October 23. At some point previous to the
announcements noted above, PDVSA put on its website a press
release claiming a "positive response from investors" for the
bonds and "ratifying" the terms and conditions previously
established.

2. (SBU) Press reports indicate brokerage houses saw limited
interest in the bonds as of October 22. Analysts have
estimated the implicit exchange rate of the bonds (which are
dollar-denominated but will be purchased in bolivars) to be
higher than the current parallel exchange rate of 5.1
bolivars/USD, thus making it more attractive to purchase
dollars in the parallel market than to buy the bond. An
executive at one of Venezuela's largest brokerages told
Econoff October 21 that the issuance was "tanking" and that
no "when and if" market had been established. (Note: A
"when and if" market refers to a deal between a potential
Venezuelan buyer and an international investor, whereby the
potential Venezuelan buyer agrees to sell the international
investor the bond on a given date at a given price assuming
the bond is actually issued. Entering into a "when and if"
agreement is a way for a Venezuelan buyer seeking to acquire
dollars to lock in a dollar value, thus eliminating price
risk. End note.)

3. (SBU) Comment: PDVSA and Venezuelan government (GBRV)
officials are clearly concerned that the bonds are not
attracting sufficient interest. The exemptions and
exceptions offered by the MEF and BCV will make the bonds
somewhat more attractive to local investors and particularly
to banks, though it is unclear if they will be attractive
enough to make the issuance a success. This marks the second
time in a row PDVSA has had to change the terms of an
issuance (see ref B for the prior issuance). End comment.
DUDDY

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