2022 Venezuelan Bond details announced

August 10, 2010

The Government announced yesterday the details of the new bond which will mature in 2022. The bond will have a coupon of 12.75%, amortize in three parts in 2020, 2021 and 2022 and will be sold to locals at 100% of its face value, which was announced today.

With these parameters, the bond should yield around 15% in the firts few days, which corresponds to a price of 87% in US$. This implies that anyone buying the bond for local currency would be acquiring dollars roughly at Bs. 4.9 per dollar, even below the price of the Central Bank’s System SITME.

I puzzle about both the maturity and coupon assigned the bond. This is very expensive for the country.  They could have gone easily with 10-10.5% and/or a shorter maturity. The theory is the Governmenmt wanted importers to get as many dollars as possible.

The bond will be sold only by banks. With these parameters I find the bond attractive for both locals to get foreign currency and for foreigners in the secondary market. It should trade above the curve initially and the coupon is very attractive, thus I expect it to draw a lot of attention among the many Venezuelan bonds and the usual pressure by locals selling will make it trade below its true value in the first few days.

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53 Responses to “2022 Venezuelan Bond details announced”

  1. David Cheever Says:

    I know of no less than 20 fake Vbonds currently floating in the market. Several Venezuela groups have access to stolen equipment from old banks (closed by Hugo Chavez) with capability to enter into Euroclear screens and make illegal changes in the screen. But, can’t never be moved. The Venezuelans are in with several crooked BCV bankers. They will steal your money and you will never see the actual bond delivered to your bank. You have been warned.

  2. Joey Says:

    Venezuelan Sovereign Bonds needed for seasoned buyer with institutional backing. Multiple transactions documented over the past 15 years. Cash close with free delivery or % upfront with back-end 40 week trade. Must be able to bring forward the title hold ONLY! Seller must prove ownership and bonds must be free and clear of all liens.

    Please contact me (Joey) or my partner John… jsanfilippo@waterfordgllc.com or johnsab1@sbcglobal.net

  3. Luis Neto Says:

    What about 1997-2027 issue?

    Anyone interested?

    Thanks

  4. moctavio Says:

    Royal Bank of Canada sells them, I am sure

  5. Hassan Says:

    Which bank in canada deals with these bonds?

  6. Chris Says:

    Paul, please have me know how I may contact you, or you may contact me at chrisjones@andice.com.

  7. Paul Says:

    I have 2001 V Bonds to sell, maturity Dec 2011, upto $600M in various blocks. Interested parties please contact

  8. Chris Says:

    I’m seeking registered owners with custody of Venezuelan bonds on Euroclear. Administrator for end buying group. DVP Euroclear. Buy ticket. Wall Street banking. Price offer is (18%) below Bloomberg Index price at date of closing. Efficient process with established professionals.

  9. moctavio Says:

    Never heard of that.

  10. MAY Says:

    or how about issue in 1991 mature in 2007 and then extended to 2020 was their such an action

  11. MAY Says:

    Moctavio How about Venezuela bonds issued in 1991 and mature in 2020. Do you know their history

  12. chris fallon Says:

    Jack can you contact me with the details of the Venezuelan bond seller that has them on Euroclear. I would appreciate it. Email me at chrisfallon77@gmail.com

    Chris

  13. Jack Olivar Says:

    The Seller has a copy of Euro Clear when they were first registered thru them.

    It is truly appalling!!!

  14. Jack Olivar Says:

    Wow! surprises the heck out of me now.

    Are you sure?

  15. moctavio Says:

    Venezuela did not issue anything in 1990 with 2020 maturity.

  16. Jack Olivar Says:

    Can anyone tell me and help me pls.

    I have a seller of VNZ Bonds issue in 1990 , they are a 30 yr Bond expiring in 2020.
    They have a face value of 25 Million each .

    Does anyone know if the country has defaulted on these Bonds and are they worth anything in the market today or the future.

    Any comments or help will be greatly appreciated.

    Thank You

  17. moctavio Says:

    If you are not a US citizen you can transfer them, if not you can wait the 63 days and then transfer them.

    Potator, try to open an account, most banks locally have such products.

    Send me an email to devilexcrement@gmail.com and tell me what is our bank and we will see.

  18. Karl Says:

    Miguel: may I transfer it to a Morgan Stanley domestic brokerage account and then ask’ em to sell it? As far as I understand these bonds are not registered in any US exchange. Can a domestic US broker hold the bonds and sell them?

  19. Potator Says:

    And if I don’t have it?


  20. If you have an investment account abroad, you can send the bond to that account and then sell it there.

  21. Potator Says:

    I went to my bank to buy this bond. I wanted to buy and sell but the bank told me that they won’t buy this time. How can I do to sell this bond in the International Market if the law says that I only can sell to Banco Central?


  22. As we speak they are trading above 81% in the WI market, they will go down if the Government issues more than 3 billion.

    Venezuela 2023 yields 15% today, at that same yield the Venezuela 22 should yield below 15%, that means it should be worth more than 87%.

    However, it will take some time for the international markets to absorb the new bond. They will trade with the curve around October if the past is any guide.

  23. carlos Says:

    80% is extremely high for these sovereign junk bonds..I bought ’em and I would be happy if we can get 75% and and stay below BsF 6 / US$

  24. OW Says:

    WIth oil at $70 the country should be issueing ZERO debt. If anything, they should be paying down debt.

    I do think they will ultimately default. They probably already know that and that is how they rationalize this in their minds.

    Remember, the Kirchners were the big benificiaries of Argentinas default and Argentina really didn’t suffer adverse consequences. Chavez knows of that example and when push comes to shove will probably do the same.

  25. moctavio Says:

    I really don’t understand the rationale. Venezuela’s yields have been all over the place in the last 5 years, now they are high. Thus, it makes no sense to issue a 12 year bond, it would be cheaper to do a 3-5 year one. The 12.75% coupon makes no sense, they could have gone with 10.5% like my first example a week ago. Finally, why 100%? people would have bought them at 120%, all this does is create the fiction that the equilibrium exchange rate is near Bs. 5 per $, which is only true in Giordani’s and Chavez’ imagination. With the implicit (M2/Reserves) near Bs. 9 this is unsustainable. As a foreign investor told me yesterday: If the Government is forced to do this with oil over US$ 80 per barrel (WTI), imagine if the world economy cools and oil goes to $60.

  26. OW Says:

    This isn’t technically a crime but it really is criminal. Pissing away $7 billion just to give out $3 billion worth of cheap dollars. And when oil is at $70!!
    Chavez is a total apatriado.

  27. moctavio Says:

    BTW PDVSA issued US$ 1.035 billion by reopening the PDVSA 2014 and selling it quietly and privately, reportedly to the Central Bank. This happened the same day (Agust 5th.) the President of the company had said there would be no issuing in 2010. It was not until yesterday that this was “discovered”.

    http://www.eluniversal.com/2010/08/11/eco_ava_pdvsa-vende-bonos-po_11A4327251.shtml

  28. moctavio Says:

    As I said this is very expensive for the country, the total cost over the 12 years will be US$ 7.2 billion. The way it is done, only the capital gets factored in the debt, the rest is paid out of the annual budget.

    Add to this that it is likely the Government will increase the size from 3 billion to 4 billion if the banks can get their act together. (Some have been very good at it, setting up an order system online, others people go to the branches and employees have no clue)

    Rosewell: All Casas de Bolsa that were intervened are still intervened. SWap (Permutas) are not legal. The Assembly approved a new law foe Caoital Markets which only allows Casas de Bolsa o work with Bs. denominated and private shares and/or paper, no Government bonds. This law cancels the previous one including all licenses. Does not look like anyone would like to own a Casa de Bolsa now.

  29. Island Canuck Says:

    “What are these bond sales going to cost Venezuela in the end?”

    Unfortunately his highness doesn’t give a damn.

    …and that’s the problem!

  30. jsb Says:

    I think OW has a good point. What are these bond sales going to cost Venezuela in the end?

  31. OW Says:

    So if these things go to maturity and Venezuela doesn’t default what is the final cost to Venezuela?

    Even though the bonds are about $3 billion does the total cost wind up being $8 billion or so with the very high interest and coupon? And when does that total cost get factored into the national debt, instead of just the $3 billion?

  32. Rosewell Says:

    Off topic:

    I heard the Casa de Bolsas has reopened. Is that true? And is dollar swap legal again?

  33. Kevin Says:

    OK, I was misinformed. I thought that it was one of those dollar-indexed bonds. Selling dollar bonds for bolivars is just so much more complicated than it has to be.

    So, in effect, this is just old fashioned balance-of-payments lending. The government could just sell the bonds for dollars, then sell the dollars to importers for domestic currency. So the government would take on foreign currency debt to pay for imports today.

  34. Miguel Octavio Says:

    No Kevin, once you pay in Bs. next Monday, the bonds trade and are payable in US $ no Bolivars involved any more.Every semester you get 12.75/2 percent in US$ in your foreign bank account. Foreign investors dont want Bs. they want greenbacks.

  35. Kevin Says:

    “So, lots of sophisticated investors do buy or short Venezuela, every day.”

    One of those two strategies does appeal to me.

    “If you pay 80% for it in US$, this means that if Venezuela does not default in the next six plus years, you already got your money back.”

    No, I haven’t got my money back. My money is dollars, but I’ve only gotten inconvertible bolivars back.

  36. Miguel Octavio Says:

    That is 75-100 million dollars a day…

  37. Miguel Octavio Says:

    Kevin: There is a very active market of Venezuelan dollar bonds coming from institutions and mutual funds in the world. About $75-100 trade daily. People bet on whether they will go up or down, whether Venezuela will default or not, others bet that they will collect the coupon in the bonds and sell before the country defaults. Those are the buyers. There is very little yield in the world, Venezuela yields 15% per year. There are billions of dollars dedicated to investing in Emerging Markets. Today some people think Venezuela will not stop paying because it can not afford to say that. Others think PDVSA can’t stop paying because it owns CITGO. This particular bond will have the attraction of a 15-16% yield to maturity, but a coupon of 12.75%. If you pay 80% for it in US$, this means that if Venezuela does not default in the next six plus years, you already got your money back and still own the bond, those who did that in the 90’s with Venezuela 18 (13.75% coupon) have quadrupled their money.

    So, lots of sophisticated investors do buy or short Venezuela, every day.

  38. Kevin Says:

    Miguel, I get that you can buy it in Bs and sell it for dollars. Selling it for dollars is smart. But why would anyone with dollars buy it? How will buying it dollars pay off? I know lots of stupid Americans, but they’ve already been fleeced and no longer have any dollars. So who will buy the bonds for dollars.

  39. Miguel Octavio Says:

    Kevin: It is denominated in US$, you get the bond and turn around immediately and sell it for dollars. Example:

    Buy $10,000 at Bs. 4.3, pay 43,000 Bolivars

    That bond should trade between 80-88% in US%, let’s pick the worst case 80%, you sell it and get 80% or 8,000 dollars.

    Divide what you paid 43,000/8,000 you paid Bs. 5.375 for each dollar, a gift!

  40. Kevin Says:

    I still do not see why I would want to pay dollars for a bond that will pay off in a nonconvertible currency. Yes, the number of Bs is putatively indexed to the dollar, but we don’t know at what exchange rate it will pay out. I’ve no use for Bs in any quantity. I might pay 5 Bs/$ to buy the bond and get paid off at the official rate of 50 Bs at maturity — that’s fine if someone will sell me the dollars at 50 Bs. But what if the government won’t sell me dollars at 50 Bs? What if the black market rate I can use to buy dollars is 500 Bs/$? Maybe I can come out ahead, but if I just want to make a long-shot gamble, I can go to a casino without waiting for 12 years to see if I won.

  41. Armando Says:

    84% is great deal!!! ->5,17… chaca la cuenta Boliburguesito!!!

  42. moctavio Says:

    What pigs, there are buyers at 84% in NY

  43. Armando Says:

    Mercantil is buying at 80% -> 5,43 Bs/US. Boliburguesito is happy again!!!.

  44. Gordo Says:

    When will the bonds go on sell?

  45. moctavio Says:

    They dropped on Friday ahead of the news, when it was a rumor. Most Venezuelans who get the 2022, people or companies, will turn around and sell immediately, so, my guess is investors abroad will wait until the price stops dropping from this massive sale. It is likely the Governemnt will increase the size form 3 billion to 4 or 4.5 billion, that is a lot of bonds to digest by the international markets which do about 75 million a day.

  46. Carlos Says:

    Miguel, why other venezuelan bonds did not loose value today?? Country is issuing 12 years sovereign at 12%.. I would assume foreign investors should sell VEN 19, and especially VEN 24 and 28 and then buy next week VEN 22..

  47. moctavio Says:

    Go to your bank, place an order. If you get some, then the bank itself can sell the bond for you next week and wire your dollars. As simple as that.

    Risk? Very little, even if the bond trades 10% below where it should you are buying dollars at Bs. 5.5.

  48. Gordo Says:

    Ok, for us simple people, where do you buy them and where do you sell them?


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