Oiling a debt swap

22 July 2003

The oilrich but cashpoor country wants to replace its expensive Brady bonds with cheaper debt. This is a case of opportunism, twice over. Venezuela is taking advantage of low interest rates, and a captive investor base.

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Venezuela plans to buy back as much as $2bn of international debt this week, taking advantage of swelling foreign currency reserves to reduce debt payments.

Venezuela is following Mexico in buying back Brady bonds in the midst of the longest rally in emerging market bonds in six years that have cut borrowing costs for emerging economies. Higher oil prices have also helped Venezuela, the secondbiggest supplier of crude to the US, to boost foreign reserves this year to $17.2bn from $12.2bn.

The cash offer targets Venezuela's Brady bonds. It will be funded by a new dollardenominated bond targeted at domestic investors. They will be able to buy the new debt using the local currency, the bolivar.

Credit Suisse is managing the offer, which is open through to July 25. As a Reg S issue, the bond cannot be offered to US investors – although they can buy it after 40 days.

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