You are on page 1of 5



25 November 2013
If you would like to make sure that you receive this report by e-mail from us each week, please let us know with a message to Russ Dallen or Miguel Octavio at or call us on: Caracas (58) 212 335 1906 Miami 305 735 8280 New York 646 201 5843 London (44) 207 993 4557 More signs of dollar shortages
As if there not enough concerns about the country, the Venezuelan Governments actions this week indicated that the Government continues to have problems with its dollars supplies. Adding to the news that international reserves have dropped by as much as 29% so far this year and that PDVSA used US$3 billion of its latest bond to pay suppliers, the Government is looking for ways to monetize a fraction of the gold which is part of the international reserves, as well as looking into creative ways to generate foreign currency liquidity in order to pay the debt it has with importers. In the first of these transactions, he Venezuelan Government has signed or is about to sign a swap contract with Goldman Sachs or one of its affiliates, pledging the gold which is part of the International Reserves which is still outside Venezuela. While President Hugo Chavez repatriated most of the gold three years ago, some


was left in custody in England in the amount of 1.45 million Troy ounces. The Venezuelan Government would receive about US$ 1.8 billion in the operation with Goldman Sachs, alleviating the problem that liquid reserves have reached historically low levels. In a second transaction, the Venezuelan Government has been working with a US bank to contact the suppliers of Venezuelan and multinational companies which are owed money and offering to pay the debt of these companies with them, as long as they accept a discount. The payment for these debts would come from the Venezuelan Central Bank. In a third transaction, which may be related to the one above, the Venezuelan Central Bank would pledge its bond portfolio as collateral for a loan to fund imports, pay debts and other commitments. This portfolio amounts to US$10 billion and reportedly the Central Bank would receive around 60% of the amount. This money would be borrowed for a fixed period of time and the intention (sic) would be to pay the loan at maturity, but given the management of Venezuelas finances, this is probably a wish, more than a plan. These three transactions, combined with the issuance of US$4.5 billion of a new PDVSA 6% of 2026 bond show the cash crunch in foreign currency at the oil company is also affecting the Venezuelan Central Bank. Despite the effort by the Government to spend less this year, its debts with companies, commitments and a lack of planning are straining the Government cash flow in foreign currency. Given these reports and the fact that the Government is so concerned about inflation, we give very little credence to reports published in local newspapers that under the new Enabling Bill the Government will eliminate the foreign exchange control office Cadivi and/or create a floating foreign

For more information call: Russ Dallen, Miguel Octavio, or Diana Arreaza Phone: (787) 999-6537 Although the information in this report has been obtained from sources that bbo Financial Services believes to be reliable, we do not guarantee its accuracy and completeness. All opinions and estimates included in this report as of this date are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Bbo Financial Services

bbo Equity Research

exchange market. The Government would only have the foreign currency to supply such a market at an exchange rate which would be politically unacceptable to the Maduro administration. The acceptance of a free floating market exchange rate would required a complete turnaround in economic policy by the Maduro Government, which we simply do no see at this time. In fact, all of the actions of the Government, including those above, point in exactly the opposite direction: the Government is willing to pledge assets, pay interest and issue debt, in order to maintain the current artificial rate of exchange, which supports the high levels of consumption of the population. While the Government is likely to devalue by the end of the year, it will probably be much smaller than what is needed and less than analysts expect. This simply postpones a solution to a future date.

Weekly Report
speculators. He stated that he would immediately approve a new Bill to control prices and limit profits of companies, as well as suggesting that in the future all products having a component imported at the official rate of exchange would have some stamp so that the consumer would know about it. The Government also said that it was spending US$100 million to import 400,000 Samsung appliances, cell phones, tablets and laptops in time for Christmas. There are so many things wrong with this not to mention a doubtfully tight time horizon -- we dont know where to start. Whether the Government finds irregularities or not, it is forcing shopkeepers and distributors to lower prices. This has driven shoppers to stores, with long lines in front of large and small stores, whether in shopping centers or along the streets. Many shopkeepers are only allowing a small numbers of shoppers at a time, as they fear looting and thefts in the rushes. Others are hiding their inventories away, hoping for better times. There are already shortages of many items, few of which are among those the Government is focused on, which is likely to make them permanent. The Government may believe that it can replace the private sector in importing and distributing almost everything, but reality will likely show a much different picture. The Government is also increasing controls and the steps required to obtain foreign currency from Cadivi. Reportedly, under the new rules, importers will have to open bank accounts in foreign currency in Venezuela to pay for their imports. Payment will only be made when the goods or services have been shipped and delivered. This new control and procedures, will introduce new delays in the first few months, as importers adapt to the new steps. Since this only adds to the many controls already in place, what the Government is doing is creating a very cumbersome system, which will only result in even more shortages and higher inflation.

War on commerce continues

The Government continued its war on commerce this week, extending to different areas of commerce and extending inspections to the owners of the shopping centers and malls where the shops are located. Inspection of stores and shops has continued in earnest, with regulators visiting them even on the weekend. The Government continues to charge storekeepers with usury, which is not actually defined in the consumer protection law. Speculation is the other charge used. However, the Government does not wait for a decision from a judge, nor does it allow shopkeepers to defend themselves in a court of law before unilaterally and arbitrarily selling off their goods. The Government simply orders that goods be reduced in price and sold immediately to the waiting hordes that follow the inspectors around (or stand outside calling them and/or tweeting them on 0800-SABOTAJE and waiting). But the authorities have also begun accusing both shopkeepers and distributors of money laundering, when goods have been imported with dollars purchased at the parallel rate of exchange. Since at least 40% of importers are excluded from CADIVI, this represents a new weapon by the Government against retailers. However, the use of this charge will only increase scarcity in the end, as importers of these goods will simply cease bringing them into the country. At the same time, the Government is threatening not to give any more foreign currency to those companies that are found to be involved in irregularities, which will also increase shortages. Maduro said that he would use the recently approved Enabling Bill in his war against

PDVSA reopens 2016 bond

PDVSA reopened its 2016, 5 1/8% coupon, local law bond, in order to exchange it for the maturing PDVSA 2013, 8% coupon bond, which was in the hands of the PDVSA Pension Fund. The company added US$562.5 million in new debt to the issue. These bonds are unlikely to hit the markets, as they will probably be held to maturity by the fund. However, it is a 2016 maturity, adding to the weigh of maturities around 2017, which is the heaviest year of the current decade. The announcement of the reopening was made two days after the PDVSA 2013 had matured.

bbo Equity Research

Analysts had wondered why PDVSA would pay its own pension fund for the bond, since it could sort of force the fund to accept an exchange. The PDVSA pension fund had held the PDVSA 2013, since it had received it in an exchange for the zero coupon 2011 Petrobono. The difference that time was that the transaction was more transparent, as the exchange was proposed to all holders of the Petrobono 2011, many of whom accepted it. This time around, only the PDVSA pension fund was involved in the exchange. This makes the exchange much less transparent, as PDVSA made all the decisions in this case.

Weekly Report

Caracas Stocks gain 5.7%

Venezuelas stock market recovered somewhat last week, with the Caracas Stock Index gaining 5.7% to 2,365,205. Volume was high, as prices seemed to bounce back from the sharp drop of the previous week. Cermica Carabobo was the leading gainer, up 315% at Bs. 130 on no news; followed by nationalized phone company CANTV up 18% at Bs. 40; Banco Provincial, up 8.8% at Bs. 740; and Mercantil Servicios Financieros A was up 5.3% at Bs. 800. On the losing side, Banco de Venezuela dropped 6.8% at Bs. 36, paper-maker Manpa lost 6.7% at Bs. 14, and Mercantil Servicios Financieros A lost 3.9% at Bs. 750. The Venezuela Stock Market is now up 401.70% for the year to date in bolivar terms, though only 242.44% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world. Before last weeks 16% tumble, the market was up 466.33% for the year to date in bolivar terms, though only 286.55% in official rate dollar terms. Real returns in the unofficial dollar market are less. On January 1, one US dollar could buy approximately 20 bolivars in the unofficial black market. On Friday in Cucuta, Colombia, across the Venezuelan border -- where the unofficial market in bolivar/dollars is not illegal -- one US dollar could be sold for 64 bolivars.

Caracas Stock Exchange for the last five days

Emerging Markets steady

After emerging market bonds were steady this week, OSX announced that it would not pay its next coupon as it seeks a standstill agreement with creditors. The bonds are guaranteed by the OSX-3 vessel, which cost US$800 million to build. Should OSX not obtain a standstill, bondholders are surely to proceed and ask to seize the ship. OSX is part of former billionaire Brazilian Eike Batistas OGX Empire. Less than two months after saying that it would not tap markets again this year, Pemex issued a 7-year bond in euros at an YTM of 3.229% with a coupon of 3 1/8%. The size of the issue was 1.3 billion euros. Venezuelan bonds were volatile, but ended the week at roughly the same levels as last week. The Venezuela 9.25% of 2027 issue was down 0.75 points to close at 76 (where it yields 13.04%), while the PDVSA 12.75% of 2022, was down 0.05 points to close at 90.8, where it yields 14.87% to maturity.
Venezuelan Yield Curve
17,50% 16,50%

EDC '18 PDV '21 '22 PDV '35 PDV '14

15,50% PDV '15,16,17 14,50%



12,50% 11,50% 10,50% 9,50% 8,50%

PDV '27 PDV '37

7,50% O-06 N-10 D-14

F-19 M-23 A-27





bbo Equity Research

Chart: Venezuelan Yield Curve, showing the Sovereign bonds as blue dots and some corporate bonds as red dots. EDC= Electricidad de Caracas and PDV=PDVSA.

Weekly Report

Issuer Petrobono '14 Petrobono '15 Petrobono '16 PDV '17 PDV '17N PDVSA '21 PDVSA '22 PDV '27 PDV35 PDV '37 EDC 18 VE '14 VE '16 VE '18 VE' 18 N VE' 19 VE' 20 VE' 22 VE' 23 VE' 24 VE' 25 VE' 26 VE '27 VE' 28 VE'31 VE '34 VE'38

YTM 13,54% 14,88% 15,81% 15,88% 14,49% 14,50% 14,49% 12,20% 13,86% 10,97% 17,09% 10,65% 13,37% 13,32% 13,37% 14,00% 13,24% 14,00% 13,87% 13,61% 13,19% 14,42% 12,84% 13,45% 14,29% 13,05% 11,62%

Due Date 10/28/14 10/28/15 10/28/16 12/04/17 02/11/17 11/17/21 02/17/22 12/04/27 05/17/35 12/04/37 10/04/18 10/08/14 02-26-16 08/15/18 01/12/18 10/13/19 09/12/20 10/08/22 05/07/23 10/13/24 04/21/25 10/31/26 09/15/27 05/07/28 05/08/31 04/09/34 01/03/38

Price 92,75% 84,00% 75,75% 73,00% 82,50% 74,50% 91,75% 55,50% 72,00% 54,25% 74,25% 98,25% 85,60% 101,00% 77,25% 75,50% 67,50% 93,75% 74,75% 70,00% 67,75% 84,50% 77,00% 73,50% 85,00% 74,00% 62,75%

Coupon 4,90% 5,00% 5,13% 5,25% 8,50% 9,00% 12,75% 5,38% 9,75% 5,50% 8,50% 8,50% 5,75% 13,63% 7,00% 7,75% 6,00% 12,75% 9,00% 8,25% 7,65% 11,75% 9,25% 9,25% 11,95% 9,38% 7,00%

Table of bond offer prices at the close of this report for booth PDVSA and Venezuelan issues

bbo Equity Research

Weekly Report

Caracas Stock Exchange Index Change since Dec 31, 2012 P/E Book Price Trai Value to (Bs.) Book Loc. Currency 2.365.204 401,7% Number of Shares US$ 71.672,9 143,2% Market cap. (US$)


Close (Bs)

Close (US$)

Change in 2012 (%)

High (52 w.) (Bs.)

Low (52 w.) (Bs.)

EPS Trai. (Bs.)

Shares in ADR

Banco de Venezuela 36,00 1,091 Banco Provincial** 740,00 22,424 CANTV** 40,00 1,212 Cemex Venezuela I** 0,71 0,022 Cemex Venezuela II** 0,70 0,021 Cer. Carabobo 130,00 3,939 Corimn A** 718,00 21,758 Envases Venezolanos** 280,00 8,485 Fab Nac de Cementos 6,50 0,197 Fondo de Valores Inm. A 18,92 0,573 Fondo de Valores Inm. B 27,50 0,833 H.L. Boulton** 89,00 2,697 Manpa** 14,00 0,424 Mercantil Serv. Fin. A** 750,00 22,727 Mercantil Serv. Fin. B** 800,00 24,242 Sivensa**All data in US $ using 0,773 ######### a25,50 forex rate equal to

176,9% 41,00 348,5% 810,00 128,6% 47,50 0,0% 0,71 0,0% 0,70 915,6% 130,00 88,9% 923,04 166,7% 280,00 0,0% 6,50 10,0% 25,41 103,7% 0,33 0,0% 73,00 115,4% 16,00 435,7% 960,00 492,6% 980,00 45,7% Bolvars31,00 33,00 per US$

7,36 115,07 14,34 0,69 0,69 12,80 271,41 14,84 6,50 14,43 8,98 73,00 4,97 121,56 111,87 10,02

0,12 15,10 2,87 0,18 0,18 52,91 0,80 0,94 0,94 0,68 24,18 24,18 3,75

300,00 49,01 13,94 3,84 3,79 na 13,57 na 8,14 20,13 29,26 na 20,59 114,03 114,03 6,80

0,58 46,89 5,93 1,52 1,52 122,00 417,15 41,31 2,48 17,59 17,59 116,76 1,82 40,67 40,67 82,57

62,07 15,78 9,25 0,47 0,46 1,07 1,72 6,78 2,62 1,08 1,56 0,76 0,59 18,44 19,67 0,31

3.647.133.702 87.000.775 787.140.849 802.300.000 596.799.000 1.601.846 15.676.618 2.893.553 81.081.000 4.974.190 46.884.357 4.500.166 229.400.942 59.733.553 42.992.256 Total.52.521.441 Mkt. Cap.

3.978.691.311 1.950.926.470 954.110.120 29.920.979 6.310.302 341.085.204 24.551.359 15.970.500 41.922.166 12.136.811 97.321.612 2.399.817.259 40.584.750 9.893.348.843

10 500

150 25 4 1

* Stock prices and ratios expressed in US $ ** These companies are part of the Caracas Stock Exchange Index Stock prices adjusted by cash dividends and stock splits The closing prices used correspond to the last trade of the day as reported by Reuters, which could differ from official Caracas Stock Market closing price