PDVSA bond announced and it’s a strange animal

June 26, 2009

PDVSA finally announced tonight the PDVSA Bond 2011 and it is a strange animal indeed:

—It is  a zero coupon bond to be paid in local currency and denominated in US$. (Zero coupon means no interst payments, it just pays 100% of its nominal or face value the day it matures in 2011)

—It will trade only in Bolivars at the official rate of exchange after it is issued.

—The final payment will be 100% of its nominal value. That is, if you buy 100,000 dollars at whatever price they sell it, at the end, only at the end (in two years) will you get your 100,000. In the meantime you can only sell it for Bolivars at the official rate of exchange.

If I understood correctly, you can only trade it in local currency at the legal rate of exchange. It says specifically:

“El PETROBONO 2011 podrá ser negociado luego de la fecha de liquidación  exclusivamente en el mercado local, en moneda de curso legal al tipo de cambio vigente para la venta.”

which says

The Petrobono 2011 can be negotiated after its payment date exclusively in the local maret, in legal currency at the rate of exchange available for sale.

I interpret this to mean that you will have to multiply dollars by Bs. 2.15 per US$. This would mean that if the price does not change (which could be one interpretation) nobody, absolutely nobody would want to sell it and will want to keep it until the end. Very strange if this is correct (I dont this this the case but…). The second interpretation is that the price can vary, so you will multiply the price x 2.15 x nominal value, and that is how many Bolivars you have to pay. While the first case it’s strange, the second one is too, as there are no dollars in the transaction until the end. How does this help push the swap rate down?

Here is the Prospectus.

19 Responses to “PDVSA bond announced and it’s a strange animal”

  1. J.A.B Says:

    “This means nobody, absolutely nobody would want to sell it and will want to keep it until the end. Very strange if this is correct.”

    Exactly…
    You’ll be buying ‘cheap’ dollars which you’ll only be able to collect in 2 years.
    If you think PDVSA will be able to honor their debt by 2011 (which I think they will), then go run and bid… but don’t expect to receive much considering how the auction method has worked in the recent past.

  2. T.I.G.O.T. Says:

    Are we certain that when it matures you will get the $100,000? And I mean actual dollars, without any small print saying that those dollars should be traded back to the government at the official exchange rate?

    Because no one should even dream of buying those things unless (and even if) it is explicitly stated at least a dozen times that you’ll get actual green papers at the end and that you can dispose of them any way you want and that you won’t be forced (by CADIVI) to sell the dollars back to the government.

    But given the robolution’s penchant for changing the rules in the middle of the game, I’d be distrustful even if it’s explicitly stated. Specially since they seem too eager to force people to use only Bs to pay for them.

  3. concerned Says:

    Does anyone still believe or trust that PDVSA will honor, or could honor a financial transaction in two years? A fool and his money will soon part.

  4. HalfEmpty Says:

    Looking for SuperBol = Dollar in 2 years… by decree.

  5. island canuck Says:

    I wouldn’t touch this with YOUR money let alone my own.

    If, as Miquel says, it can only be traded “…in legal currency at the rate of exchange available for sale.” then you have to trade it back for Bolivares which is the only “legal” currency in Venezuela.

  6. Innocent bystander Says:

    You don’t think they will try and use this “paper” to pay contractors? This would amount to a kind of two year deferment of their debt.

  7. Morrocoy Says:

    As I see it, the only way to earn some kind of money with this would be if in two years from now, there’s a devaluation… For the rest I don’t get, who will buy a “Bono” with no interest ??? , of course at least if they sell it with a discount in the beggining….Just Weird….

  8. butter Says:

    but who said anything about the swap rate? that was always an afterthought for pdvsa. in fact pdvsa gains from a high swap rate, as it has all the dollars it needs, and likes to trade them at 6 bolivars rather than 4 or 3 bolivars. (who wouldn’t?)

    morrocoy – people buy this bond at less than face value. there are no-interest bonds all over the world. if you buy $1000 face value, you pay, say, 2000 BsF now and get $1000 in 2 years.

  9. concerned Says:

    “people buy this bond at less than face value. there are no-interest bonds all over the world. if you buy $1000 face value, you pay, say, 2000 BsF now and get $1000 in 2 years.”

    It is not a bad deal for the buyer aside from the gamble that PDVSA will pay this bond in two years in dollars. From PDVSA, this is just another example of stupidity and morgaging the future to stay afloat today. Yes they will get a surge of B’s to pay contractors and salaries today (if the money is actually used for this and not directed into special friends pockets), but to pay the face value in two years instead of the equivalent amount in B’s on the parrallel market is insane. Can anyone guess what the parrallel rate will be in two years if the country continues in this direction? I guess it is no different than giving away oil and profits to cuba and petrocaribe.

  10. Andromeda Says:

    Swap rate is acting accordingly after the news… no surprises

  11. liz Says:

    PDVSA not only owes money to contractors and business associates.

    They are not honoring medical expenses of retired employees. For the last trimester or so…

  12. Andres F Says:

    In 2011 the dollar should be worth about 11 bolivares.

  13. EG Says:

    Andres,

    I don’t think it matters so much what the swap rate will be it at, but what the swap rate is today. After all, you must decide if it’s cheaper/safer to but dollars at today’s swap rate or gamble on this bond and wait and see what happens in a couple of years.

  14. Sergio Says:

    anyone knows what were PVSA’s past bonds ratings? I would safe is a safe bet, although, you have got to be careful on where will you deposit the money. I don’t want the government to know any of my accounts outside the country

  15. Andromeda Says:

    Sergio, looks like both S&P and Fitch gave BB- ratings to PDVSA back in march of 2007 when their bonds came out.

    S&P downgraded PDVSA a couple of weeks ago to B+.

    Links:
    http://bonosvenezuela.blogspot.com/2007/03/s-califica-bb-emisin-de-bonos-de-pdvsa.html ( S&P 2007)

    http://bonosvenezuela.blogspot.com/2007/03/bonos-de-pdvsa-obtienen-calificacin-bb.html ( Fitch 2007)

    http://bonosvenezuela.blogspot.com/2009/06/standard-poors-reafirma-calificacion.html ( S&P 2009)


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  18. Andres F Says:

    EG,

    Did I say, if it mattered? If it’s not a problem I was responding to “concerned”’s question.

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