Zero Coupon dollar Bolibanana “auction”

January 13, 2010

The revolution never ceases to amaze. Today mid-morning, more like late morning, Reuters reported (The Central Bank leaked?) that the Central Bank was ready to sell US$ 50 million today as part of its effort to lower the swap rate. Not ten minutes later, the same source says they want the swap rate to go to Bs. 5 per dollar and the Central Bank will “auction” three-month zero coupon bonds.

So far, so good, the Government and the Central Bank have a new strategy, more transparent than the way they used to intervene the swap market. Sound very interesting. Except…

—The bond needs a market, buyers want currency, not bonds

—How can they do it this fast? They should announce it and then give people the chance to call clients and the like. A few days and this may work.

And then, as fast as you can say “Zero Coupon”, an announcement comes, you have to place your orders between 3 PM and 4 PM, those that “win” the auction will have to pay by 9 AM tomorrow and the bonds will only have custody at the Venezuelan Central Bank, no custody abroad. And…

And…in the best innovative Bolivarian style (Or is it Bolibanana?) the “auction” will be at a fixed price.

Say what?

Why even call it an auction if  this is the sale of a bond at a price and the Central Bank will decide using its Bolivarian random number generator who got the bond and who didn’t.

I know the Bolivarians hate markets, but this s somehow ridiculous.

And here I have to get a little “technical” and explain the bond. Since there is no auction, the price is like a nice full lunch in Paris “prix fixe”, the bonds will be sold at 116.25% at an exchange rate of Bs. 4.3 per dollar.

So, with the swap rate near Bs. 6, the Central Bank will sell you a bond with no interest, payable on March 14th. at Bs. 4.3 x 1.1625=Bs. 4.99875 per $. That is a difference of “only” 20%. (Note that we now have four rates of exchange, Bs. 2.6, Bs. 4.3, Bs. 4.99 and the swap rate)

That is, if you sold 1,000 dollars in the swap market at Bs. 6, you received Bs. 6,000 and you could turn around and order $ 1,200 of the new bond that in three months will give you $1,200. A nice 20% profit in US$ if you can hold on to the bond for three months.

But you had to have the Bs. in the Central Bank by 8 AM tomorrow, which not everyone could. Despite this, the Central Bank, I am told, received orders for US$ 500 million.

Thus, if the idea was like the Reuters source indicated, to lower the swap rate to Bs. 5, probably when they saw the size of the orders, they probably went to get some of these, because it looks like a very tall order to really lower the swap rate that much.

Unless of course, this was simply rigged to help a few make a buck.

Nahh! you say.

Well, here is the very transparent “result” of the “auction”. Yeap, they offered $50 million, they sold $50 million. And all at the “prixe fix” of 116.25 per $100. Who got it? Oh! That is confidential, someone definitely did. Not me, but I do want some.

It was indeed a Zero Coupon Bolibanana”auction”

9 Responses to “Zero Coupon dollar Bolibanana “auction””

  1. dineroglobal Says:

    Well, the “Prix Fix” continues…wonder if one of this geniouses will place the next “auction” in…at least it would be more transparent!

  2. Teo Says:

    This is a funny way to tell the story… How the goverment pretend to act on the swap rate with 50 MM $ HAHAHA

  3. island canuck Says:

    Read today’s Caracas Gringo:
    Collapse in 120 days –

    This is just getting too funny – at least it would be if I didn’t live here.

  4. Eric Lavoie Says:

    Hmmm 3 months are some people close to the regime smelling trouble and are trying to cash in quickly, Before it falls apart?

  5. moctavio Says:

    At the end of the three months, the zero coupon will be paid in US dollars.

    In the middle, you may find someone to buy the zero coupon from you.

    It is similar, except since there was not competitive bidding, you dont know who got or not the bonds.

  6. caracaschronicles Says:

    ps: or, isn’t this EXACTLY the same thing they were doing back when PDVSA was just straight out picking up a phone and calling favored operators to assign them dollars at Bs.5, except overtly rather than in hiding?

  7. caracaschronicles Says:

    Ya va, ya va…I need the For Dummies version here. I didn’t understand any of that…specifically: how precisely is it that these bolivar bonds transmogrify into dollars if I can’t transact them abroad!?

    No entendí…

  8. Alex Dalmady Says:

    iDiaper? Very cute.

    Cute idea by the BCV, too. They hold on to their dollars a while and still count them as reserves, until of course, the bonds come due.

    They can -and undoubtedly will- run up a nice tally of these “Bonos Cambiarios” over the next few months.

    And then? They can’t roll these obligations over, since the BCV prints bolivars not dollars. They’ll have to pay ($). Will they? Can they?

    This is getting very interesting.

  9. julicarbonell Says:

    pudieras traducir este artículo

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