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Honoring commitments with bonds is good for Venezuela

It seems that providers have no problem with Venezuelan notes

Central Bank of Venezuela

Yield of Venezuelan securities “is awesome (Handout photo)


25 de marzo de 2016 23:59 PM


Honoring commitments with bonds is good for Venezuela

The Venezuelan government’s move towards honoring its international commitments with securities is a good sign, according to José Ignacio Guarino, a university professor in the area of Finances and Securities Market.

In his view, the assurances given to creditors as to offset the actual loss when cashing bonds are positive too.

“I understand that the Executive Office is pondering on a mechanism able to offset the actual loss when trading the bond in the secondary market,” he clarified.

If a provider is paid a debt for USD 80 million with a bond, this note could be for a higher value in order to offset the loss. In this way, the debt will be paid in full, the expert exemplified.

“If I pay with a note quoted in the market at 75%, basically what will be lost when the bond is sold to get the money is the difference between 100%, which is what is being paid, and the market value, which is 75%.  That is: there could be a loss of 25%,” he spelled out.

Accepting bonds

“Of course,” international providers prepare to accept Venezuelan bonds, Guarino said.

The scholar remembered that in 2015 it was reported that the Executive Office had embarked upon buyback of Pdvsa 2002 bonds, one of the best securities in the market.

“Everyone must be willing to receive the securities, provided that the note will be liquid and negotiable, and its debt actual or face value is not lost. For instance, if you owe them USD 1 million, give them USD 1,250,000 to make up for the loss,” the university professor suggested.

Furthermore, the yield of any Venezuelan note in US dollars “is awesome,” bigger day by day. If a company has a strong financial muscle, it is not to sell those notes; it will keep them and, depending on their maturity date, will collect their face value, he broke down.

A portion of the money is kept

The Venezuelan government has postulated that by paying with bonds some of the funds are expected to remain in the country, instead of taking all of them out.

USD 10 million is outstanding; all of it is repaid. However, a percentage of that money –still to be defined- should be segregated to make investments in the company. Such is the government estimate of productive economy. Nevertheless, should the company resolve to leave, how much money will remain in the country? Guarino queried.

Translated by Conchita Delgado Rivas

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