Bloomberg News

Venezuela May Pare Dollar-Bond Sales After Currency Changes

July 20, 2012

New rules governing Venezuela’s state-owned companies will boost the supply of dollars in the central bank’s currency market and may reduce bond sales abroad by the government, BancTrust & Co. and Barclays Plc said.

Under central bank rules published today, state-run exporters such as oil company Petroleos de Venezuela SA can use 5 percent of their dollar holdings to buy bonds abroad that can then be sold for bolivars in the Sitme market at a preferential rate. Sitme sales are performed at an exchange rate of 5.3 per dollar, weaker than the official rate of 4.3.

Such transactions will boost the supply of dollars in the Sitme market, which is used by companies that can’t win approval to buy foreign currency at the official rate, and reduce the need for Venezuela’s government to issue bonds for sale in the market, said Hernan Yellati, the head of research and strategy at BancTrust & Co. in Miami.

“This could allow the government to continue to finance itself in bolivars and avoid issuing dollar bonds,” Yellati said.

President Hugo Chavez has maintained capital controls since 2003 when he pegged the bolivar to the dollar following a two- month national strike that nearly halted oil production and plunged the country into recession. The government, which along with the state oil company sold a record $17 billion of dollar bonds last year, hasn’t sold dollar-denominated securities since October.

Sitme Operations

PDVSA, as the state oil company is known, sold $3 billion of bonds due in 2035 in a private placement with the central bank in May.

Sitme was created in June 2010 after Chavez dismantled an unregulated currency market operated by brokerages following the weakening of the free-floating exchange rate to a record, which the government said was stoking inflation. The central bank oversees Sitme operations which involve the selling of government and PDVSA bonds to banks that trade the securities on behalf of clients.

Venezuelans, who can’t access the official rate or Sitme, turn to the black market where a dollar fetches about 9.3 bolivars.

The yield on Venezuela’s benchmark 9.25 percent bonds due in 2027 rose 28 basis points, or 0.28 percentage point, to 11.73 percent at 2:24 p.m. in Caracas, according to data compiled by Bloomberg. The bond’s price fell 1.7 cent to 82.57 cents on the dollar.

Yield Spread

The extra yield that investors demand to own Venezuelan bonds over U.S. Treasuries widened 22 basis points to 1,104, according to JPMorgan Chase & Co.’s EMBI Global index.

Today’s resolution formalizes the role of different state entities in the supply of dollars, Barclays analysts Alejandro Arreaza and Alejandro Grisanti said today in a note to clients.

This should “help reduce the pressure from excess supply of Venezuelan bonds that has characterized the market in recent years,” the analysts said.

The percent that state companies can use of their export revenue may increase to more than 5 percent if the government sees that it is being effective in supplying the market, BancTrust’s Yellati said.

Venezuela also eased currency rules to some companies and individuals to hold dollar accounts in local banks, according to the resolution published in the Official Gazette.

Foreign companies contracted to work with the state on development projects and individuals and Venezuelan companies that obtain dollars through “legal means” including the selling of bonds, will be permitted to hold accounts locally for the first time since the controls were installed 9 years ago.

The exchanging of those dollar accounts into bolivars will be done at the official rate of 4.3, the resolution said.

To contact the reporter on this story: Daniel Cancel in Caracas at

To contact the editor responsible for this story: David Papadopoulos at

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