Venezuela's debt capacity slips

Economy
Pressed by an expenses account it can no longer meet with ordinary income, the Venezuelan government is being forced to incur in large-scale debt, but the market's brim is full and those bonds are being harder to place.

The announcement that state-owned oil company Pdvsa is selling bonds for USD 3 billion maturing in 2014, 2015 and 2016 affected the securities already issued by the Republic and listed in foreign markets.

The news that Venezuela would offer considerably more bonds, which is expected to result in lower prices for those papers, has led investors to hold off drastically any purchase orders while others opted to sell part of their portfolios.

The outcome has been a sharp fall in the prices of the Republic's bonds. Securities maturing in 2027, which entail greater liquidity and are used as reference, lost 3 points and closed at 77 percent of their value.

Miguel Octavio, a BBO analyst, explains that "the investment funds that usually purchase Venezuelan bonds are limited and seem to be flooding the market." He adds that "the market's close to saturation point. If Pdvsa does issue bonds for USD 3 billion, it might not be able to issue any more instruments for a long time."

Alejandro Grisanti, an analyst at Barclays Capital, believes that "there is little room for debt instruments; the market will have a hard time dealing with the offer, especially since Venezuela does not clearly establish fiscal accounts and maintains little communication with the market other than announcing its plans to lower the parallel exchange rate for US dollars."

Over this year alone, the government of Hugo Chávez has incurred in debt, by issuing US dollar-denominated amounting to USD 8 billion, without even taking into account Pdvsa's scheduled issue.

Also, the Ministry of Finance has sold the banking sector a large amount of bonds and treasury bills, causing domestic debt from December to June to rise by 44 percent, from USD 14 billion to USD 20 billion.

In terms of US dollars, at the official exchange rate for transactions in bolivars, the government has issued debt instruments amounting to USD 14 billion 839 million, an already elevated number, so far this year. These amounts do not include bilateral loans with China, Japan and Brazil, as information on those transactions remains unavailable.

Alejandro Grisanti believes that "Venezuela's debt total, which at the beginning of the year was USD 65 billion, will close 2009 at USD 100 billion."

Most investment banks believe the weight of the debt over the size of the economy is not excessive, as debt amounts only to 20 percent of GDP.

Nevertheless, that estimate was made at the official exchange rate of VEB 2.15 per dollar. Had it been determined at the parallel exchange rate, the weight of the debt over the size of the economy would rise to 60 percent of GDP.
vsalmeron@eluniversal.com

Translated by Félix Rojas

Víctor Salmerón
EL UNIVERSAL


http://english.eluniversal.com/2009/10/16/en_ing_esp_venezuelas-debt-cap_16A2908571.shtml