From the Editors of VenEconomy

This Tuesday, August 10, a new U$3 billion debt issue is being launched, the “Bono Soberano Internacional Amortizable 2022,” with an unprecedented coupon of 12.5%/year.

The Sovereign Bond is being offered at 100% of its nominal value, payable in bolivars at an exchange rate of Bs.F.4.30:US$.

The closing date for the sale is Friday, August 13, and the results and allocations will be announced on Monday, August 16. Crédit Suisse and Deutsche Bank are administering the issue.

Fifty percent of the issue will be allocated to producers of food, health, and capital goods and the other 50% to private individuals and other companies.

VenEconomy estimates that this sovereign bond will be traded on the international market at between 85% and 87% of its nominal value initially, which would give a yield at maturity of 15% a year and an implicit exchange rate of Bs.F.5:US$.

The fact that this bond will probably be going onto the international market with a yield of 15% –three times more than Greece’s last issue- reflects how badly Venezuela’s credit has suffered in the rest of the world.

Mention also needs to be made of the fact that this sovereign issue will generate not a single additional dollar for the nation or for the Central Bank of Venezuela, as it is being sold for bolivars.

What this issue will achieve, however, is to reduce the pressure on CADIVI and the Central Bank from the unmet demand for foreign currency, in particular from importers.

Apart from its extremely high cost, it is worth noting that this issued became “necessary” given PDVSA’s inability to generate the dollars the government requires and the economy needs in order to be able to function.