VZCZCXRO2439
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1378 3011341
ZNR UUUUU ZZH
P 281341Z OCT 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3890
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 001378 
 
SENSITIVE 
SIPDIS 
 
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 VE
SUBJECT: PDVSA SELLS USD 3.2 BILLION WORTH OF BONDS 
 
REF: A. CARACAS 1340 
     ¶B. CARACAS 1362 
     ¶C. CARACAS 1228 
 
¶1.  (U) PDVSA announced on October 26 that it will sell USD 
3.2 billion (face value) of a Petrobono combination (see ref 
A for details).  It said it accepted all offers received but 
did not give further details about who the buyers were.  As 
the bonds are dollar-denominated but bought from PDVSA in 
bolivars, PDVSA will raise about 9.7 billion bolivars with 
this issuance (Bs 9.7 billion = USD 3.26 billion in face 
value x 2.15 Bs/USD (the official exchange rate) x 138 
percent (the price)).  A financial sector contact told 
Econoff he expected banks and, secondarily, insurance 
companies were the major purchasers of these bonds thanks to 
incentives offered by the Venezuelan government (GBRV) and 
the Central Bank (BCV; ref B).  Further sweetening the deal 
for banks, the National Assembly is in the process of 
modifying the Central Bank law in a way that will allow the 
BCV to buy PDVSA debt (septel).  (This modification would 
reduce the default risk for local banks, as it gives an 
implicit guarantee that the BCV would accept PDVSA debt 
through its discount window in return for local currency.) 
Several financial sector contacts also noted it appeared 
either PDVSA or the GBRV was buying back an undetermined 
quantity of PDVSA bonds (specifically the Petrobono 2011 sold 
in July) in an effort to lower the anticipated yield of the 
new Petrobono issuance. 
 
¶2.  (SBU) Comment:  This issuance was successful in that 
PDVSA raised the amount it originally intended.  However, it 
also showed the limitations the GBRV and PDVSA face in using 
dollar-denominated bonds purchased in bolivars as a means of 
controlling the parallel rate (ref C).  The primary 
limitation is that the more debt the GBRV and PDVSA issue, 
the higher the yield demanded by international investors to 
buy the bonds on the secondary market.  In this case, 
investors apparently proved unwilling initially to pay the 
price asked by PDVSA given the yield they expected the bonds 
would bring on the secondary market, thus causing the BCV and 
GBRV to provide additional incentives.  End comment. 
DUDDY