Juan Pablo Spinetto and Guillermo Parra-Bernal
March 15, 2007
Venezuela's state oil company is considering a $5 billion corporate bond sale to domestic investors that would be the second-biggest in Latin America.
Petroleos de Venezuela SA will offer the securities mainly to individuals in Venezuela willing to invest for a period between 25 years and 30 years, Chief Executive Officer Rafael Ramirez said. The transaction would be 40 percent bigger than the sale the company previously planned. Ramirez, who is also oil and energy minister, said the size remains under discussion.
Venezuela's bolivar gained as much as 6 percent in the unregulated market after Ramirez's comments, said Nelson Corrie, head of trading at Interacciones Mercado de Capitales in Caracas. The sale is part of a government plan to absorb excess cash that's fueling the fastest inflation in Latin America.
''This is the first time that the oil industry gives Venezuelans access to a different instrument of domestic savings,'' Ramirez said in an interview at an Organization of Petroleum Exporting Countries summit in Vienna.
The currency appreciated to 3,800 bolivars to the dollar, the strongest since January 11, compared with 4,000 to the dollar yesterday, traders said. The bolivar, which the government has fixed at 2,150 to the dollar since March 2005, has declined 13 percent this year in street trading and other markets outside the legal government channel.
''If they decide to go for that size, the effect on the currency market will be quite significant -- it's $5 billion worth of bolivars being withdrawn from the banking system,'' Corrie said in Caracas.
Petroleos officials said in recent weeks that they were planning the sale of $3.5 billion of dollar-linked securities that could be purchased only by Venezuelan residents.
By selling bonds, preferably securities linked to the dollar, the issuance would take pressure off the currency, Corrie said. The bolivar has weakened this year as inflation quickened and President Hugo Chavez, 52, nationalized companies in the telephone and energy industries.
The bond sale would be the largest in Venezuela's capital markets. In the region, it would be second only to the 15.5 billion reais ($7.1 billion) sale of bonds by Brazil's BFB Leasing SA Arrendamento Mercantil last July, according to data collected from the Web sites of the securities regulators of Brazil, Argentina, Colombia, Venezuela and Mexico.
Chavez's threefold increase in government spending in the past four years, coupled with restrictions impeding Venezuelans from buying foreign exchange, have flooded the economy with bolivars. The spending is pushing annual inflation above 20 percent. The country's banks holds excess cash worth $20 billion, according to the central bank.
''It reflects growing awareness that a strategy to control inflation through debt sales should help keep liquidity from growing further,'' Luisa Palacios, a New York-based analyst with Barclays Capital Inc., said in a phone interview.
Chavez imposed currency restrictions in 2003 and tightened rules last year for obtaining dollars for imports of ``non- essential'' goods and items also produced domestically. Under those restrictions, only the government can sell dollars to the public.
Ramirez didn't give a timetable for the sale, although he said the issuance is ``ready'' to hit the markets. He declined to confirm whether the bonds would be linked to the U.S. dollar.
Petroleos, which has borrowed about $4.5 billion this year from banks, is raising cash to finance a $70 billion expansion plan designed to boost overall output to 5.8 million barrels a day by 2012 from 2.45 million barrels a day.
In February, Petroleos received a $3.5 billion loan from a group of Japanese lenders led by Japan Bank for International Cooperation. In exchange, PDVSA agreed to supply as many as 30,000 barrels a day of oil and refined products for the next 15 years to Marubeni Corp. and Mitsui & Co., which helped provide the money.
The same month, Petroleos obtained a $1 billion loan commitment from banks led by BNP Paribas SA for a one-year revolving credit facility.
''They are simply pumping up capital expenditure to ramp up production, and they need cash to do that, Mark Turner, an analyst with money manager Hallgarten & Company, said in a phone interview from Arequipa, Peru.
The debt sale also coincides with increased social spending by the company. PDVSA, as Petroleos is known by its acronym in Spanish, spent twice as much on social programs than on its oil and natural-gas business last year, continuing a trend that began in 2004.
The Caracas-based company spent $11.8 billion on social programs last year compared with investment of $5.8 million on its domestic oil and natural-gas operations, a document released by the Energy Ministry March 5 showed. The company spent a total of $24 billion on social programs over the past five years.
The company's debt is rated B1 by Moody's Investors Service and BB- by Standard & Poor's. Both ratings are four levels and three levels below investment grade respectively.
Chavez imposed foreign-exchange restrictions in 2003 and last year tightened rules for obtaining dollars for imports of ''non-essential'' goods. Under those restrictions, only the government can sell dollars to the public. Government officials said in January that people who purchase dollars in unregulated markets may be subject to prosecution.