Venezuela’s PDVSA Boosts Bond Offer to $7.5 Billion

Venezuela's state-owned oil company, Petroleos de Venezuela SA, boosted its sale of bonds by 50 percent to $7.5 billion, making the transaction Latin America's biggest corporate bond sale ever.

More than 350,000 investors in the local market placed orders for the dollar-denominated bonds, more than three times the offering’s size, Finance Minister Rodrigo Cabezas said in an interview.

“It has been an extraordinary auction, with highly positive results,” Cabezas said from his office in Caracas.

The sale tops the 15.5 billion reais ($7.1 billion) sale of bonds by Brazil’s BFB Leasing SA Arrendamento Mercantil in July, according to data collected from the Web sites of the securities regulators of Brazil, Argentina, Colombia, Venezuela and Mexico.

Cabezas said the bond sale forms part of government efforts to arrest a slide in the currency in the unregulated market and absorb the excess cash that’s fueling the highest inflation rate in Latin America. The government is planning a third joint offering of international bonds with Argentina in coming weeks that would be aimed at resident investors in Venezuela.

“The debt ratios of Petroleos are absolutely manageable and that’s why they’re expanding the offering,” Cabezas said. “Without any doubt it shows Venezuelans’ confidence in their oil industry.”

Joint Sales

The company already priced the 10-, 20-and 30-year bonds at a price of 105.5 cents, or $1.05, each on March 26. The securities pay interest rates of 5.25 percent, 5.375 percent and 5.5 percent, respectively. Cabezas said the government won’t tax earnings on trading of the bonds.

“This transaction will prevent the government from having to tap the local markets later on the year,” said Miguel Octavio, executive director of Caracas-based brokerage Bbo Servicios Financieros, in an interview.

Venezuelan and Argentine officials will also discuss plans in weeks ahead to sell more bonds in joint offerings, Cabezas said. The two countries sold $1.5 billion of securities on March 5, the second such offer since November.

ABN Amro Bank NV and Caracas-based Econoinvest Casa de Bolsa CA managed the offering for PDVSA, as the oil company is known.

The bolivar, Venezuela’s currency, traded near its highest level since January in unregulated markets. The bolivar, which the government sets at an official exchange rate of 2,150 per dollar, was unchanged at 3,650 bolivars per dollar in the so- called parallel market from yesterday, traders said. The bolivar has gained 9 percent since March 22, when PDVSA announced the sale plans.

The yield on the 5.25 percent dollar-linked bond, known as a TICC, jumped 20 basis points, or 0.2 percentage point, to 5.28 percent, its biggest increase since the bonds started trading last month, according to Banco Bilbao Vizcaya Argentaria SA. The price, which moves inversely to the yield, fell 1.75 cents to 102 cents.

Individuals and companies that buy the Petroleos bonds are likely to sell them for dollars in the secondary market, traders said.

Ecuador, Bolivia

Venezuela is also studying joint bond sales with Ecuador and Bolivia, Cabezas said. He said the government isn’t planning on issuing any local debt until those joint sales are completed.

The government last sold fixed-rate debt, known as TIF bonds, on Nov. 1. Sales of TIFs are traditionally suspended at the start of December, when the holiday season begins in Venezuela. The central bank suspended the sale of 91- and 182- day treasury bills in December.

The sale of bonds by Petroleos is helping mitigate a dearth of financial instruments in the local market triggered by currency and interest-rate controls that President Hugo Chavez imposed in 2003, said Matt Festa, an analyst with New York-based research company 4Cast Inc.

Under restrictions that Chavez imposed in February 2003, foreign currency trading outside official government channels is prohibited. Venezuelans often turn to the unregulated market to obtain dollars when they can’t get them from the government.

To contact the reporter on this story: Theresa Bradley in Caracas at [email protected] .