Archive for June 26th, 2009

PDVSA bond announced and it’s a strange animal

June 26, 2009

PDVSA finally announced tonight the PDVSA Bond 2011 and it is a strange animal indeed:

—It is  a zero coupon bond to be paid in local currency and denominated in US$. (Zero coupon means no interst payments, it just pays 100% of its nominal or face value the day it matures in 2011)

—It will trade only in Bolivars at the official rate of exchange after it is issued.

—The final payment will be 100% of its nominal value. That is, if you buy 100,000 dollars at whatever price they sell it, at the end, only at the end (in two years) will you get your 100,000. In the meantime you can only sell it for Bolivars at the official rate of exchange.

If I understood correctly, you can only trade it in local currency at the legal rate of exchange. It says specifically:

“El PETROBONO 2011 podrá ser negociado luego de la fecha de liquidación  exclusivamente en el mercado local, en moneda de curso legal al tipo de cambio vigente para la venta.”

which says

The Petrobono 2011 can be negotiated after its payment date exclusively in the local maret, in legal currency at the rate of exchange available for sale.

I interpret this to mean that you will have to multiply dollars by Bs. 2.15 per US$. This would mean that if the price does not change (which could be one interpretation) nobody, absolutely nobody would want to sell it and will want to keep it until the end. Very strange if this is correct (I dont this this the case but…). The second interpretation is that the price can vary, so you will multiply the price x 2.15 x nominal value, and that is how many Bolivars you have to pay. While the first case it’s strange, the second one is too, as there are no dollars in the transaction until the end. How does this help push the swap rate down?

Here is the Prospectus.