The Devil's Excrement

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
care!

This entry was posted on March 7, 2005 at 8:34 pm and is filed under Venezuela.