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Cablegate: Pdvsa Sells Usd 3.2 Billion Worth of Bonds

VZCZCXRO2439
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1378 3011341
ZNR UUUUU ZZH
P 281341Z OCT 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3890
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 001378

SENSITIVE
SIPDIS

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 VE
SUBJECT: PDVSA SELLS USD 3.2 BILLION WORTH OF BONDS

REF: A. CARACAS 1340
B. CARACAS 1362
C. CARACAS 1228

1. (U) PDVSA announced on October 26 that it will sell USD
3.2 billion (face value) of a Petrobono combination (see ref
A for details). It said it accepted all offers received but
did not give further details about who the buyers were. As
the bonds are dollar-denominated but bought from PDVSA in
bolivars, PDVSA will raise about 9.7 billion bolivars with
this issuance (Bs 9.7 billion = USD 3.26 billion in face
value x 2.15 Bs/USD (the official exchange rate) x 138
percent (the price)). A financial sector contact told
Econoff he expected banks and, secondarily, insurance
companies were the major purchasers of these bonds thanks to
incentives offered by the Venezuelan government (GBRV) and
the Central Bank (BCV; ref B). Further sweetening the deal
for banks, the National Assembly is in the process of
modifying the Central Bank law in a way that will allow the
BCV to buy PDVSA debt (septel). (This modification would
reduce the default risk for local banks, as it gives an
implicit guarantee that the BCV would accept PDVSA debt
through its discount window in return for local currency.)
Several financial sector contacts also noted it appeared
either PDVSA or the GBRV was buying back an undetermined
quantity of PDVSA bonds (specifically the Petrobono 2011 sold
in July) in an effort to lower the anticipated yield of the
new Petrobono issuance.

2. (SBU) Comment: This issuance was successful in that
PDVSA raised the amount it originally intended. However, it
also showed the limitations the GBRV and PDVSA face in using
dollar-denominated bonds purchased in bolivars as a means of
controlling the parallel rate (ref C). The primary
limitation is that the more debt the GBRV and PDVSA issue,
the higher the yield demanded by international investors to
buy the bonds on the secondary market. In this case,
investors apparently proved unwilling initially to pay the
price asked by PDVSA given the yield they expected the bonds
would bring on the secondary market, thus causing the BCV and
GBRV to provide additional incentives. End comment.
DUDDY

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