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Editorial Commentary
VenEconomy:
Murky, sovereign maneuverings
With the announcement of the International Sovereign Bonds Issue, intended for the importers of food, medicines, and capital goods, the government confirmed what had been an open secret: that a concealed dual foreign exchange regime was in the making.
This implicit foreign exchange regime differs from an open one in that the government keeps the market supplied via dollar-denominated bonds instead of authorizing the Central Bank to sell foreign currency on the market directly.
While this mechanism is unorthodox, it would at least provide solutions for businessmen who need to obtain foreign currency.
However, the surprise came when the Finance Ministry published the official announcement of the $3 billion International Sovereign Bond issue, will be done in two parts: 50% of the issue would be awarded to domestic companies with applications backed up at Cadivi and the other 50% to individuals or companies resident or domiciled in Venezuela (investors) and entities registered with the Finance Ministry for obtaining government bonds.
This means that the relief for importers whose foreign currency applications have been backed up at Cadivi for nearly six months will be less than was thought.
What is even worse, it looks as though this heralds the return of the murky dealings that prevailed with the PDVSA bond issues, the structured notes, and the La Electricidad de Caracas bond issue, where “friends” of the government obtained high profit margins from buying swap dollars at a considerable discount on the market price.
The new International Sovereign Bond issue will be sold at 115%, payable in bolivars, at Bs.2.15:$, and buyers will be able to sell them in Luxemburg for dollars, so generating an “implicit” exchange rate of approximately Bs.2.75:$-Bs.2.90:$.
This suggests that a buyer could obtain a gain of $170 for every $1,000 purchased.
In other words, someone who buys $1,000,000 in sovereign bonds could earn $170,000 overnight.
These suspicions arise thanks to the lack of information from the Executive on the criteria used to award the bonds and the discretionary manner in which beneficiaries are chosen.
It would be quite different story and the suspicions far less if the Finance Minister and the Central Bank were to inject a strong dose of transparency and properly inform the public, in detail, of the criteria used for allocating the bonds and who the beneficiaries will be.
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 04/23/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 04/25/08
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