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Editorial / Commentary / Opinion
VeneEconomy : Between a rock and a hard place
$1.5 billion in Global Bonds 2010 mature on August 7 and, even though there are only 17 days to go, according to official and unofficial sources, neither the Central Bank of Venezuela nor the Finance Ministry have decided how to meet this payment.
One possibility is for the payment to be charged to the international reserves of the Republic. The problem with this option is that the operating or liquid reserves currently come to only $9 billion. If the bonds are repaid by charging them to liquid international reserves, those reserves will be reduced to $7.5 billion, equivalent to three months of imports, a level considered dangerously critical.
The other option would be to allow the Executive to make a new bond issue to replace the Global Bond 2010 that is about to mature. The problem with this is that, at the moment, international investors are not in the least bit interested in acquiring Venezuelan papers, which means that a new bond issue could be unacceptable given its high cost.
Proof of this is that Venezuela's Global Bond 2027 has been trading for a yield of 14%-15% to maturity, and the PDVSA 2014 Bond has been trading for a yield of up to 20%. This contrasts dramatically with what is happening with Greece, which has just floated a new debt issue with a yield of only 4%.
Another indication of how difficult it would be to place a new issue comes from CMA of London, a firm specializing in credit analysis, which estimates that there is a 58.7% likelihood of Venezuela calling a moratorium within the next five years, the highest risk rating of all the countries analyzed and much higher than Greece (55.6%) and Argentina (47.9%).
Further proof of the low esteem in which the international market holds Venezuelan papers is the reception given to the $700 million bond placement by CITGO in June. Even though the bonds were backed by a mortgage on CITGO's refineries in the United States, the issue went onto the market with an extraordinarily high coupon of 11.5%. What is worse, analysts are suggesting that the coupon would have been 20% had it not been for the guarantee afforded by real estate in a country where there is respect for the law.
For the time being, it looks as though the revolutionary experts at the Finance Ministry and the Central Bank are picking petals off a daisy to see which of the only two options open to them will have the lower impact on the chances of maintaining control over the National Assembly and the continuity of Chávez's communist project. The problem is –and it's a serious one- is that whatever the government does, it is the country that will lose out.
VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. 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 , July 20, 2010. Petroleumworld reprint this article in the interest of our readers
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