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PdVSA raising funds ahead of growing uncertainty

Nov 13, 2013

The oil company is selling the first new bonds from a Venezuelan state entity in more than a year. It is raising funds ahead of what analysts see as further economic and political deterioration.

Petroleos de Venezuela (PdVSA) is preparing to sell $4.5 billion in new bonds, the first deal by the state oil company or by the sovereign since May 2012.  

The sale comes ahead of the next measure of the government's popularity, the December 8 mayoral elections.

"Polls are showing a strong decline in President Maduro's approval rating, suggesting the possibility of a heavy defeat for the government in December's mayoral elections," Barclays said in a report. "A large setback for the government here could further weaken Maduro's leadership, limiting the government's capacity to make the necessary economic adjustments."

Recent price controls are unlikely to solve the inflation and scarcity problems, Barclays says. Although authorities may express a willingness to make some adjustments to economic policy, at this point it sees government action as too little, too late.

Venezuelan bonds saw a "large" selloff Tuesday, on the news of the PdVSA sale and the government's decision to force electronics retailers to lower prices, Bank of America Merrill Lynch says in a report.

The shop says it awaits the central bank's scheduled release of its third quarter national accounts data on or after November 18, for an indication of ability to pay going forward. An improvement over the third quarter 2012 result of $2.3 billion seems likely, it says. However, BAML expects the economy to contract by 3.3% year-on-year in the quarter.

"A deep contraction is a sign of deteriorating conditions that are likely to continue to fuel social instability, leading to continued governance concerns," it says.

PdVSA has not issued bonds since a $3 billion sale in May of 2012, and the Venezuela sovereign has been out of the market since 2011, according to Dealogic data.LF


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