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Editorial Commentary
VenEconomy: Think ill, and you’ll be right!
On Monday, November 12, the government announced, with a tremendous fanfare, that it had place $1.52 billion of Venezolano I bonds and that the issue had be fully subscribed. It also said that the allocations cover more than 62% of the 62,290 applications received. What it did not specify was the amounts placed.
But far from being a success, this issue could be considered a failure from the institutional point of view, owing to the opaque, unprofessional way in which the operation was handled.
One of the biggest irregularities was committed when, on Tuesday, November 13, after the issue was closed, a reduction in the initial interest rates for the first coupons of the two Vebonos was surprisingly announced. So the rate for the Vebono that matures in 2014 is now 11.54% instead of the initial 11.98%, and the rate for the Vebono maturing in 2015 is 9.7% instead of 11.54% as announced originally.
This way of doing things is unheard of, as it is unacceptable to change the rules of the game when they have been made public, they have been accepted by the players, and the starting signal has been given.
Another irregularity was committed when establishing the allocations. Although the process started off on the right foot when those interested in acquiring the bonds were asked to take part in a kind of auction, this changed when the quotas were established.
The normal procedure in this type of auction is for the offers to be ordered by price (highest to lowest) and for a price to be chosen that will permit the placing of the entire issue, which in this case would be 136%. In other words, all those who offered 136% or more should have been entitled to buy at 136%. However, much to the surprise of analysts, that did not happen, with the result that those who offered more will have to pay at the price they offered.
Apart from the fact that the quotas were not placed at a single price, two additional lots were accepted below 136%. So, those who offered 125% and 135.99% were granted 35% of the amount they requested, and those who offered between 122% and 124.99%, were allocated 20%. This is not normal practice, nor was it provided for in the initial offer, and it could give rise to all kinds of interpretations.
This lack of transparency gives grounds for thinking that, when the final results are published, there will probably be “surprise” allocations of high volumes of bonds at less than 136%. But, until the amounts placed are officially announced, there is no way of knowing what is behind the Venezolano I issue.
The point is that the government managed to place its Venezolano I, allegedly to reduce liquidity, take pressure of the swap exchange rate, and bring down inflation, but its somewhat erratic and nontransparent manner of proceeding suggests that the true objective may well have been to continue financing its mammoth levels of public spending in the run-up to the referendum on the constitutional reform.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's note: This commentary was originally published by VenEconomy, on 11/14/2007. Petroleumworld reprint this article in the interest of our readers. Petroleumworld does not necessarily share these views.
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Petroleumworld News 11/15/07
Copyright© 2007 VenEconomy. All rights reserved.
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