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Now Chavez doses out the sale of Argentine bonds
Ambito Financiero
July 16, 2008

By Carolina Barros

It appears the Venezuelan Finance Ministry has decided to put its financial market in a little bit of order. It implemented a schedule for it that, from now to the end of September, would offer US$100 million per week in Argentine bonds to the Venezuelan banks.

The goal is to avoid continuing to saturate the trading floors with BODEN 2015 paper, that in recent days has been stampeding out to sale. As this newspaper reported, a recent offering by the ministry had a deadline of August 19th, obliging local entities to unload their "structured notes" with bonds in dollars of third countries, among them Argentina.

The Venezuelan legislation prohibits holding positions with guarantees in foreign currencies at any more than 30% of portfolios. As they had exceeded this percentage, in the Caracas financial district they estimate that almost US$6 billion in bonds could rotate out.

About this amount, no one could guess how much of the US$2.988 billion in BODEN 2015 (collected between 2007 and what is going in 2008) is still unsold. In turn, it is possible to estimate the amount of BODEN that are still held in the National Treasury's portfolio: US$1.2 billion. Those are going to be offered, in doses, until the end of September.

During the first half of 2008, Finance sought to do well by the debtors and adjudicated more than US$2 billion in structured notes (which would include more than US$400 million in Argentine bonds) that were in the National Development Fund (Fonden).

The entity, created in 2005 with the reform of the Venezuelan Bank Law, was charged with buying debt at high risk from third countries, which was then packaged (in its two meanings) in "structured notes"to be sold to private, friendly banks.

But the Venezuelan banks wrapped up in packaging swallowed up this sweet cash that the Fonden offered and to not pass the legal limit of 30% with its purchases they got on their own bicycle, with the help of foreign banks. They asked them to emit structured notes, but in bolivars guaranteed with dollars from the sales of the structured notes from the Fonden. The deal, with the revaluation of the bolivar (from 5,500 to the dollar in 2007 to 3,500 in mid-2008), the sweet turned bitter.

The drop in the dollar and the requirement of the banks to comply with the 30% rule is affecting the price of the structured funds. But there is another ingredient. The Chavista government began a policy of buying back debt. It's seeking to reduce it by 15%. For that why at the end of April it set out a bond of US$4 billion. With the US$600 million produced from this sale, plus an additional credit, the Venezuelan state would buy back US$1.5 billion of its debt, once the National Assembly approves it. This obliges it to unload its Argentine bonds, which will be going out to the market at a rate of US$100 million per week.