VZCZCXRO2408
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1340 2892014
ZNR UUUUU ZZH
P 162014Z OCT 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3844
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 001340 
 
SENSITIVE 
SIPDIS 
 
ENERGY FOR CDAY AND ALOCKWOOD 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR MKACZMAREK 
NSC FOR DRESTREPO AND LROSSELLO 
USDOC FOR 4332 MAC/ITA/WH/JLAO 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EPET VE
SUBJECT: PDVSA ANNOUNCES USD 3 BILLION BOND ISSUANCE 
 
REF: A. CARACAS 1283 
     ¶B. CARACAS 852 
     ¶C. CARACAS 1228 
     ¶D. CARACAS 1270 
     ¶E. CARACAS 1311 
 
¶1.  (U) Petroleos de Venezuela (PDVSA) announced on October 
16 terms for a USD 3 billion bond issuance.  The issuance, 
which had been widely expected, is a combination of three 
"Petrobonos" maturing in 2014, 2015, and 2016 with coupons 
ranging from 4.9 to 5.125 percent.  The terms of the issuance 
are similar to those of the recent sovereign bond issuance 
(ref A) in that they set purchase price of 138 percent of 
face value, with purchases made in bolivars at the official 
exchange rate of 2.15 Bs/USD.  (Note:  If PDVSA issues USD 3 
billion worth of face value of the bonds at this price, PDVSA 
will raise roughly Bs 9 billion (USD 3 billion x 2.15 Bs/USD 
x 138 percent).  End note.)  According to the terms of the 
issuance, the proceeds will be directed to investments 
outlined in PDVSA's "Plan Siembra Petrolera."  (Note:  PDVSA 
used at least part of the proceeds of a USD 3 billion 
Petrobono issuance in July to pay part of its debts to 
oilfield services companies (ref B), and it is likely part of 
the proceeds of the current issuance will be used for this 
purpose.  End note.) 
 
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Comment 
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¶2.  (U) By issuing dollar-denominated bonds purchased in 
bolivars, PDVSA is supporting the Venezuelan government's 
(GBRV's) efforts to lower the parallel foreign exchange rate, 
which is currently 4.9 Bs/USD (down from almost 7 Bs/USD in 
early August).  Ref C outlines related GBRV efforts and 
provide's post's analysis of the reasons for and the 
limitations of this strategy.  Ref D discusses the GBRV's and 
PDVSA's overall debt situation. 
 
¶3.  (SBU) This Petrobono offer is less attractive financially 
than the recent sovereign issuance, which offered buyers the 
opportunity for an immediate profit of almost 20 percent (ref 
E).  According to one calculation, the implicit exchange rate 
of the sovereign issuance was roughly 4.3 Bs/USD.  (Note: 
The implicit exchange rate is calculated by dividing the Bs 
spent in purchasing a given quantity of bonds by the USD 
acquired upon immediate sale of the bonds in international 
markets.  It is thus dependent on the price/yield of the 
bonds in international markets, a value which is unknown 
before the bonds are actually sold.  End note.)  While we 
have not seen an estimate of the implicit exchange rate of 
this Petrobono offer to date, it is almost certain to be 
higher than 4.3 Bs/USD because PDVSA bonds yield more than 
sovereign bonds (i.e., they sell for a lower price).  Also, 
the more debt PDVSA and the GBRV issue, the more 
international markets will be saturated and the less appetite 
international investors will have for new debt.  As a manager 
at one of the largest emerging market funds commented to 
Econoff October 16 before the terms were announced, "The 
world is in love with emerging market (debt) except with 
Venezuela on account of that country's insistence on managing 
money supply by issuing more debt." 
DUDDY