A Teeny-Tiny Debt Sale Breathes Life Into Venezuela’s Markets

Venezuela’s unofficial transformation into a dollarized economy is breathing new life into the country’s financial markets.

The president of the Caracas Stock Exchange says several private companies are lining up to sell hard-currency debt in the wake of the country’s first dollar-denominated note issuance in more than 20 years, the $300,000 in commercial paper placed by the rum maker Ron Santa Teresa about a week ago.

“It is a small issuance, but has awakened a lot of interest,” said Gustavo Pulido, who has been the bourse’s top executive since 2017. He expects two similar sales by the end of the year and more to come. “This is going to be the first of many.”

A Teeny-Tiny Debt Sale Breathes Life Into Venezuela’s Markets

The exchange in recent years has served mostly as a vehicle for Venezuelans to buy securities they hoped would protect against the almost daily depreciation in the local currency amid a staggering economic collapse. That produced what looked like incredible returns in percentage terms -- with an index of stocks up 100,235,064% since the end of 2017 -- even as the bulk of the gains were wiped out by inflation.

But as President Nicolas Maduro loosens restrictions on using dollars, essentially conceding that the bolivar is now worthless, areas of the economy that aren’t completely controlled by the government are showing new signs of life, including financial markets.

A Teeny-Tiny Debt Sale Breathes Life Into Venezuela’s Markets

The exchange has only about 60,000 traders, but the average number of transactions has more than tripled this year. The 64-year-old Pulido, who before joining the exchange had founded his own brokerage, says there’s a huge need for financing while potential creditors have about $2 billion stuck in Venezuela that could be used to provide funding.

A Teeny-Tiny Debt Sale Breathes Life Into Venezuela’s Markets

A major obstacle for sales of dollar-denominated notes is the absence of clearing operations to allow foreign-currency payments through local banks. Pulido expects there will be a system in place by the time Santa Teresa’s one-year notes mature, but they were sold at a discount and don’t pay interest so as to skirt any payment issues before they come due.

“You can’t grow in bolivars,” he said. “We need a multi-currency stock market.”

©2020 Bloomberg L.P.

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