Economy
The bonds the state-run oil company Petróleos de Venezuela (Pdvsa) sold last week have been given a frosty welcome by investors, who are skeptical about what they term oversupply of Venezuelan titles and the obligation to settle any dispute in Venezuelan courts.

As a result, the bonds due in 2014 are traded at 57 percent of their value, while the bonds expiring in 2015 are quoted at 53.75 percent and the 2016 bonds are quoted at 50.75 percent. These levels have boosted the US dollar price in the swap market.

Venezuelan companies and banks buy dollar-denominated Pdvsa bonds in Venezuelan bolivars and resell them abroad to obtain dollars that are ultimately sold in the parallel market.

As they receive fewer dollars for the bonds, they sell them at higher prices in the unofficial market (it is forbidden under the law to disclose the unofficial US dollar exchange rate).

Risk perception results in higher yield. Pdvsa bonds due 2014 currently yield 18.5 percent while the bonds issued by the Brazilian oil company Petrobras have a 4.40 percent yield.

Analysts consider that the Venezuelan government has flooded the market. In the last month, the Ministry of Finance and Pdvsa have issued dollar-denominated bonds amounting to USD 8 billion, which is the highest amount issued in the emerging countries.
Traders say that there are few buyers of Venezuelan bonds in the market. Therefore, supply exceeds demand, thus forcing down the price of Venezuelan papers.

Waiting for the Central Bank
As soon as the reform of the Central Bank Law is published in the Official Gazette, the BCV may buy and sell Pdvsa bonds. Therefore, it will have the power to intervene in the foreign exchange parallel market.

When the Central Bank buys Pdvsa bonds, the price of papers will rise and as a result the parallel dollar price will decline.

If a greater supply of dollar-denominated bonds is required, the BCV may resell the bonds, and through this option it will calm the market.

"Nobody is defending right now the price of petrobonds. Therefore, the market expects the Central Bank to purchase the bonds as soon as it can," a debt trader said.

The goal of financial authorities is to reduce the gap between the official exchange rate of VEB 2.15 per dollar and the swap market to no more than 60 percent in order to curb inflation.

The Foreign Exchange Administration Commission (Cadivi), the agency responsible for authorizing and allocating foreign currency at the official exchange rate, has limited the authorizations of US dollars in the first nine months of the year.

Consequently, Venezuelan companies have purchased 49 percent of imported products with dollars bought in the swap market, resulting in a sharp devaluation affecting directly some sectors of the economy.
vsalmeron@eluniversal.com

Translated by Gerardo Cárdenas

Víctor Salmerón
EL UNIVERSAL