Economy
Last week, state-run oil holding Petróleos de Venezuela (Pdvsa) sold bonds for USD 3.2 billion in order to get funds. But the company needs more money, and its CEO Rafael Ramírez has confirmed that they will go ahead with a renewed issue of notes.

Ramírez recently told Reuters that the operation would be completed "in the short term."

In his opinion, Pdvsa has room for healthy indebtedness. "What we should see is the debt-equity ratio. If we compare it to similar or more important companies in our area, we have a very healthy debt-equity ratio of less than 22 percent. This allows us the indebtedness."

"We reported that we would issue notes to get up to date with our payments to providers," Ramírez told state-run news agency ABN. The goal, he added, is to end this year "without debt or commitments, to keep on making headway with our plan for economic expansion."

Fast pace
Based on a report forwarded by Barclays Capital on October 30th to its customers, the next issue of Pdvsa bonds will be around USD 3 billion.

If this amount is materialized, the country's total debt, including Pdvsa and the central government and considering the debt placed in Venezuelan bolivars at the official exchange rate, will climb by 51 percent this year, from USD 64.7 billion to USD 97.7 billion.

While in terms of the size of the economy, the Venezuelan debt is not statistically significant, it should be noted that thanks to the fixed exchange rate, the Gross Domestic Product (GDP) in US dollars turns out to be artificially high.

An estimate made by Barclays, taking into account the parallel exchange rate, showed that the country's total debt will go from 27.6 percent of the GDP in 2008 up to 39.2 percent this year, not a very comfortable level.

Slanting downwards
As soon as Ramírez announced the next issue, the decline of the Pdvsa bonds launched to the market last week moved faster.
Notes with a 2014 maturity date on Tuesday ended at 55 percent of their value, those expiring in 2015, at 50.75 percent, and those due 2016, at 48.75 percent. Such numbers mirror much uncertainty among investors.

Debt brokers explained that in October only, both Pdvsa and the Venezuelan government placed in the market bonds for USD 8 billion. Such an amount goes beyond the existing domestic demand, resulting in an environment with untoward effects on the value of notes.

"Add to this the news about more bonds, the term and conditions of which are not known. This, obviously, fuels uncertainty and the knowledge about continued oversupply," a broker said.

As soon as the reform of the Law of the Central Bank of Venezuela (BCV) is published in the Official Gazette, the financial entity will be able to purchase Pdvsa bonds. In this way, investment banks expect that the BCV will buy a portion of the upcoming notes.

By these means, the price of Pdvsa bonds could improve in the face of more demand.

Soaring parallel market
Businesses buy dollar-denominated Pdvsa bonds with Venezuelan bolivars and resell them abroad to get foreign currency.

As the bonds are sold for less, the price of the US dollar in the parallel market heightens.

Right away, the parallel market provides the foreign currency for half imports, thus making an impact on inflation.
vsalmeron@eluniversal.com

Translated by Conchita Delgado

Víctor Salmerón
EL UNIVERSAL