colocacion desierta

Venezuela Cancels Second Domestic Debt Sale in 2 Days (Update1)

By Alex Kennedy

Aug. 9 (Bloomberg) -- Venezuela withdrew its second domestic debt sale in two days, withdrawing a sale of 200 billion bolivars ($93 million at the official exchange rate) of six-year bonds to domestic investors.

The central bank, acting on behalf of the government, didn't say in a statement today why the sale was canceled. Public Credit Director Luis Davila, who manages the government's debt sales, didn't return calls seeking comment left on his office and mobile phone.

Bond traders said the government refused today to pay the yields investors demanded on the securities. The bonds, due November 2013, would have paid an annual interest rate of 9.625 percent. The government withdrew a sale of the same bonds yesterday.

``The government is going to have to pay something closer to where similar bonds are currently trading, around 13 or 14 percent,'' said Nelson Corrie, head of trading at brokerage Interacciones Mercado de Capitales in Caracas.

President Hugo Chavez has used record oil income to boost government spending, boosting consumption that drove the annual inflation rate to 17.2 percent last month from 13.5 percent a year earlier. Government-imposed restrictions on currency trading implemented in 2003 have increased the money supply, pushing down interest rates.

The yield on the 9.75 percent, bolivar-denominated bond due December 2014, known as a TIF, fell 129 basis points, or 1.29 percentage points, to 12.33 percent, according to Banco Bilbao Vizcaya.

Cash Flow

Davila said last week the government planned to sell 4 trillion bolivars of five-year to 15-year local debt in weekly auctions through the end of the year and use the proceeds to refinance maturing debt.

``With the price of oil as high as it is right now, the government doesn't have any cash flow problems,'' said Carmen Julia Noguera, an analyst with Banco Mercantil in Caracas.

The price of crude oil traded on the New York Mercantile exchange has increased 42 percent from its recent low of $49.90 on Jan. 18. It traded at $71.63 per barrel at the close of floor trading today.

Noguera said she expects a budget deficit of 1.4 percent of gross domestic product this year and an inflation rate of 16.2 percent.

Previous Bond Sale

The government sold 200 billion bolivars of bonds due December 2012 to yield 9.16 percent last week, the government's first domestic debt sale since March.

The bolivar was little changed today at 4,300 bolivars per U.S. dollar in the parallel market, traders said. The bolivar has fallen 21 percent this year in the unregulated market.

The government pegs the bolivar at an official exchange rate of 2,150 per dollar. Venezuelans turn to unregulated markets when they can't get approval from the government's Foreign Exchange Administration Commission to buy dollars through the government at the official exchange rate.

To contact the reporter on this story: Alex Kennedy in Caracas at akennedy1@bloomberg.net