Archive for March 7th, 2005

Another strange international transaction by the Venezuelan Government

March 7, 2005

Everytime the Government of Venezuela issues a new bond, something
truly out of the ordinary happens. Today, Venezuela issued a euro
denominated ten year bond in the amount of euros 1 billion, which
matures in 2015 and has a yield of 7.1%. What was peculiar this time
around is that it was an amazing rush job, it was announced early this
morning and orders had to be in by 8 AM EST, which is 9 AM in Caracas.

What is strange about this? Easy. Imagine you want to place a bond (or
sell anything), you want as many people as possible to put orders in
for it. Well, it is hard for someone to place an order if that someone
does not know the bond even exists. No? So, what is typically done is
to announce the bond and receive orders at least for a couple of days,
give brokers time to call their clients, give the clients time to
evaluate the terms and decide whether to participate or not. The more
orders you receive the more “expensive” from the point of view of the
buyer you can sell it.

Well, last night there had been no announcement about the bond.
Sometime during the night, European brokers found out about it and US
and Venezuelan brokers found out this morning at 8AM EST. They had only
an hour to run and get orders. Not much time, no? In fact, many
corporations and institutional investors are incapable of deciding on
such short notice whether to make any investment, particularly
Venezuelan ones.

Some might say only Europeans would have been interested in this
because it was in euros, but even for these investors time was simply
too short. Bu no matter what your target investor may be, you still
want as many orders and investors as possible. A Government spokesman
said that there were orders for 2.8 billion euros. Well, I am sure they
could have recieved orders for even more, maybe as much as 4 billion
euros. You see, 7% yields in euros are hard to come by. As an example,
Mexican bonds in euros with similar maturities as this issue yield
about 5%, way below this issue.

The issue came out at a price of 99.3% and was instantly trading at
100% of its face value and it looks like it will inch up in the next
few days.Those that “knew” about teh bond ahead of time will certainly
profit handsomely.

By the way, Venezuela issued today this bond and the Minister of
Finance confirmed
that Venezuela will invest US$ 500 million in
Argentinian bonds because it is attractive and to promote
integration. Thus, the Government that declared itself against
“capitalism” two weeks ago and said it will promote “socialism”, turns
around and borrows 1 billion euros of which it will pay 500 euros for a
bond maturing this month, use US$ 500 million to make a
profitable investment and subsidize a richer country and it will
have about US$ 300 million leftover to use in Venezuela. Of course, it
will have to pay about US$ 100 million in interest by October, so all
the “people” get in the end is a meager US $200 million this year. Is
this is a Government that “cares”, God save us from those that don’t

Chavez vs. Chavez

March 7, 2005

In typical
Chavez style, today he makes two statements that are difficult to understand
together. In one, Chavez
blames Bush
for the price of oil going up because of the invasion of Iraq and threats to Iran. He even laughs at Bush and
says that Bush has a plan called “mister Bush” to get the price to US$ 260 per
barrel, because Bush and Condoleezza Rice have oil interests.

But then
he turns around and says
that the world can forget about cheap oil
and that oil is searching for its
equilibrium price around $40 to $50 dollars per barrel. So, I ask, which is it?
Did Bush increase it or is the price correct?

But maybe
Chavez did it, at least that used to be the canonical explanation around here
until recently. This is typical Chavez versus Chavez, not long ago, Chavez took
the credit for making oil prices higher, saying that it was his decision to cut
production down in 1998 that brought prices to their correct level. While
Chavez may have been more hawkish on cutting production, the truth is that Venezuela was already
cutting production down to help prices before Chavez took power in 1998.

clearly is now fixated with the US
President and Mrs. Rice. Many interpret this to be a strategy to gain
popularity. But as a good friend and reader reminded me today, polls last year
showed that attacking the US may be popular in Cuba, but not in Venezuela. Maybe
that’s the problem, Chavez has too many Cuban advisors.

Bolivian President resigns, how will it be interpreted locally?

March 7, 2005

So, Bolivia’s President Carlos Mesa offers his resignation after the
leader of the coca growers and Congressman Evo Morales threatens to
block all roads unless oil taxes are raised. Mesa, who remains popular,
may have his resignation rejected by Congress. Essentially, Mesa does
not want to use force to stop either Morales or the peopel of El Alto,
where another crisis is brewing over the privatized water comapny.

Venezuela’s politicians are so far silent on the matter. If Mesa
resigns, will they call it a coup? A triumph for democracy?
Participatory democracy? The imposition of popular will? Whatever
they say, I am sure that they will be in favor of Mesa’s resignation or
maybe they will suprise us alll by saying that thye will not interfere
with the affairs of another country, but I doubt it.

But that is exactly what Chavez has done in the past. Only a couple of
weeks ago, Chavez had the same Evo Morales in his Sunday radio program,
Chavez said that there should be a Constituent Assembly in Bolivia, but
the “oligarchs” opposed it, in a clear violation of the same soverignty
that he defends daily in Venezuela. There have always been rumors thta
Chavez provides funding for Morales, but there has been no proof that
this the case.

Excellent link with all the details here in Publiuspundit