On Thursday Hugo Chavez held a meeting at the Presidential palace to “celebrate” the placing of the New 2011 bond. The issue was for US$ 1 billion, has a coupon of three month Libor plus 1% and there was demand for twice as much as the size of the issue.
It was a carefully coordinated show, with the Vice-Minister of finance in New York interviewing analysts about how great the economic team is doing and how well received these bond issues are. The Venezuelan Ambassador to the US also spoke abut how well received this issues are in the US.
Then came Chavez who rambled on in his usual style, talking about the fact that these bonds demonstrate the confidence that foreign investors have in Venezuela, following the line of the country’s economic team and his representative to the US.
Well, the truth is that this bond was sold to local investors only in local currency. In fact, they are not registered with the SEC and are issued under the so called Reg “S” which means that for forty days, no US investor will be able to buy it. Thus, what was left unsaid is that it was succesful because it was sold to locals, thanks to the exchange controls. Yes, foreign investors will buy them eventually, but not because the economic team is wonderful or doing well (technically you can’t fault these issues), but because oil prices are high, nothing more, nothing less.
The rest is simply smoke and mirrors.