New hope for treasurers seeking to get cash out of Venezuela?
Government intervention into the parallel swap market last May and then replacing the parallel structure on June 9 with a new System of Transactions in Foreign-Currency-Denominated Securities (SITME; see related story), left many multinational treasurers scrambling for answers.
Foremost was to determine was how much of their cash they would be able to convert and repatriate from Venezuela. Limits placed on conversion were too low to be meaningful and fed broad speculation that the Venezuelan central bank lacked enough dollars to meet only extremely urgent demand. SITME made doing business in Venezuela just about untenable for most firms. To add to the mix, the Venezuelan Central Bank President, Nelson Merentes, at the end of July all but acknowledged that SITME was unsustainable when he reportedly said that the former swap market would be restored in October.
Now comes word that beginning today, Venezuela will issue $3bn of dollar-denominated bonds maturing in 2022, its first issue since last October. Credit Suisse and Deutsche Bank will manage the bond offering and the bonds will pay a rate of 12.75 percent, the Venezuelan Finance ministry said on its website.
How much and how for MNCs?
According to Bloomberg, the Venezuelan Finance ministry said it will sell half of the bonds to large, CADIVI-registered companies and the other half to individual investors and small companies that don’t receive dollars at the official rates of 2.6 and 4.3 bolivars per dollar.
As with all such bond offerings, treasurers have to wonder how much to bid in order to maximize their allocation. While $3bn may be intended to soak up multinational demand all at once, Bloomberg quotes Standard Chartered LatAm fixed income strategist Bret Rosen as noting that the issue could easily end up oversubscribed to the tune of $5-7bn, which would prompt a negative market reaction. Such was the case with its last bond issue in October 2009, where a $3bn issue became $5bn.
Most Venezuelan bonds are bought as a currency exchange mechanism, however, and not to hold as an investment, so it will be interesting to see how exactly the currency conversions will work. Certainly it would not be useful to convert via SITME and its exchange limits of $50,000 a day and $350,000 a month. Since opening on June 9, SITME has reportedly traded some $1bn, or $20-30mn per day, which is far short of the $80-100mn per day on the old parallel market.
The volume differential is of course due to SITME limits, but also the end of the practice that helped spark its creation, namely the parallel market brokers exchanging currency without swapping the underlying bonds (just pretending to). The new issue helps with the supply of bonds, so it makes sense as a precursor to reconstituting the parallel market in some form or significantly restructuring SITME.
Amid talk of restoring the former swap market, there are also reports that Venezuela will create a new public securities market (Bolsa Pública de Valores) fed with new public-sector debt issues. This comes as part of a new Venezuelan Securities Market Law being drafted. While issues on the exchange will be in bolivars, eventually it could also be used to streamline companies’ access to dollars if the bonds come to be used in swap transations. Reuters and Bloomberg reportedly are being tapped to set up the trading platform. When swap transactions will be allowed to start and what rate of exchange will be used for secondary market trading is uncertain. Treasurers with business in Venezuela will have to wait and see, but there is some reason to hope for something better in the way of exchanging their bolivars.