Published On: Fri, Jan 24th, 2014

Venezuela bonds plunge after Bolivar weakened for travel

RamirezCARACAS - Venezuelan bonds plunged to the lowest in more than two years after the government announced the latest partial devaluation of the bolivar, this time for airlines and foreign direct investment.

Venezuelans traveling abroad, airlines and foreigners sending remittances home must use a secondary exchange rate determined at weekly auctions, Economy Vice President Rafael Ramirez said yesterday. The rate set at the latest auction was 11.36 bolivars per dollar, compared with the official rate of 6.3. Airlines operating in Venezuela fell and one carrier suspended flights.

The partial devaluation comes as the government attempts to halt a hemorrhaging of dollars that has pushed international reserves to a 10-year low. The announcement came on the same day that the country’s largest private food producer, Empresas Polar SA, said it can’t import more raw materials because authorities are delaying the release of dollars.

“The government has done too little and too late to reduce the currency distortions,” Alejandro Grisanti, economist at Barclays Plc said by telephone from New York yesterday. “This partial devaluation means more money printing by the central bank to finance the government.”

Yield on Venezuela’s benchmark 9.25 percent securities due in 2027 rose to as much as 15.2 percent today in New York, the biggest increase since the post-election violence in April. Bond’s price fell 1.76 cent to 68.17 cents on the dollar at 2:38 p.m. in New York, the lowest since November 2011.

Acute Imbalances

“The market has been hoping for a more clear-cut devaluation that showed the government is serious about addressing the increasingly acute macroeconomic imbalances,” Ben Ramsey, an economist at JPMorgan, said yesterday in an e-mailed response to questions. “The implementation of a multi-tiered, discretionary system has been difficult to decipher, especially with the government trying to emphasize that they are maintaining the 6.3 rate.”

Since taking office in April, President Nicolas Maduro has struggled to boost growth and rein in inflation in a country with the world’s biggest oil reserves. Consumer prices rose 56 percent last year even as government price regulators backed by troops forced more than 1,000 businesses to cut prices on everything from toys to electronics.

The country’s international reserves fell to $20.5 billion this month from more than $28 billion a year ago.

Black Market

Without access to dollars at the official rate, many companies and individuals turn to the illegal black market, where the bolivar weakened from 74 to 79 per dollar after yesterday’s announcements, according to, a website that tracks the exchange rate on the Colombian border.

If the dollars sold at auctions don’t damp the black market, the government may amend laws and enable people to bring more money in via “swaps,” Ramirez said today on the Venevision television network, without giving details.

Maduro’s government sold $8.6 billion last year to finance travel, airlines and remittances, 19 percent more than in 2012, according to Ramirez.

Still, measured at the official rate, airlines have an equivalent of $3.3 billion in bolivars trapped in Venezuela that they can’t expatriate because of exchange controls, according to the International Air Transport Association.

Awaiting Clarification

“We’re still waiting to hear regarding yesterday’s announcement from the government if the cash that we have there can be repatriated at the older rate or if it’s got to be repatriated at the new rate,” James Compton, chief revenue officer at United Continental Holdings Inc. (UAL), said in a conference call today. United has about $80 million trapped in Venezuela, the Chicago-based airline said.

Ecuador’s state-owned Tame Linea Aerea suspended indefinitely all of its seven weekly flights from Caracas today because of payment delays, the company said in a statement. Other companies have slashed sales in bolivars.

After previous devaluations, the government honored the old rates for existing debts with carriers, said Humberto Figuera, president of the Venezuelan Airline Association. Ramirez said the government will review the rates for its debts with the private sector.

Airline Shares

Publically traded airlines with the heaviest relative dependence on Venezuela, Colombia’s Avianca Holdings SA and Panama City-based Copa Holdings SA (CPA), fell fell 6.1 percent and 4.7 percent respectively as of 2:30 p.m. in New York.

Food producer Polar said yesterday that authorities are delaying the release of $643 million dollars. In total, the government owns private companies $10 billion in foreign currency, according to Venezuelan business chamber Fedecameras.

“The companies will be lucky if the government pays them at all, at any exchange rate,” said Aura Palermo, currency controls specialist at Caracas-based AP Consulting Group. “Businesses can’t plan in any way now, as they don’t know when they can participate in the auctions and at what rate.”

By Anatoly Kurmanaev, Bloomberg

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