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23 December 2013
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The Venezuelan Government gave this week an advanced look at the possible ways in which it could devalue in 2014, when it announced that tourists, oil investors and gold investors would be able to exchange its foreign currency at the last Sicad rate, rather than the official rate of exchange as it was up until this week. The Sicad rate has actually not been published up to now, but it is known to be in the range of Bs. 11.0 to Bs. 11.50 per US dollar. The Central Bank has indicated that it will begin publishing it regularly in its webpage; each time there is a Sicad auction. The announcements, made by the Vice President for the Economy Rafael Ramirez, would reportedly give US$ 6 billion in investments according to Ramirez. Ramirez said that the Sicad market would be strengthened in 2014 as an alternative mechanism for foreign exchange, leaving the official rate at Bs. 6.3 per US dollar for food, health, education and capital goods only.
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Ramirez seemed to indicate that the way Cadivi works could be changed, saying that it would now be the new National Center for Foreign Commerce that would be in charge of assigning and controlling foreign currency. Ramirez suggested that the amounts given for foreign travel would also be changed, but did not indicate if they would also be changed to the Sicad rate, but he certainly did not include them the lower official rate of Bs. 6.3 per US$. Ramirez seems to be preparing the way for the 2014 devaluation, which would contain at least two rates, if not three, and which would be implemented gradually. Moving certain items to the Sicad rate, as announced, would be a first step, followed by a devaluation of the Sicad rate and either simultaneously or later, by a devaluation of the Bs. 6.3 per US dollar rate. The Government continues to discuss the introduction of a third rate via a controlled market, but there are still differences on how it should be implemented. Separately, the subject of the gasoline price increase continues to be in the headlines, as both Minister Ramirez and President Maduro made comments on the subject this week. Ramirez talked about the need to increase the price of gas, showing a slide in which for PDVSA to break even would require an increase from the current Bs. 0.09 per liter to around Bs. 2.8 per liter. This would raise the price of a 15-gallon tank (56.8 liters) to US$25.20 at the official rate of exchange of Bs. 6.3, but barely US$2.50 at the unmentionable parallel exchange rate. However, the Government is still studying the increase in the price of gasoline and no decision has been made on the details. Maduro suggested that the increase would be phased in over three years, which implies that with current inflation rates, which would be sustained by a gradual increase in gas prices and a devaluation, much of the benefits from increase would be wiped out in a short time by inflation.

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What this all points out to is that the Government is once again considering a timid and gradual adjustment, concentrating on the devaluation and the gas price increase, but that is likely to be it for the time being. They do not feel the need or the pressure to make a strong adjustment and fear the repercussions of doing it that way. In fact, raising the price of gasoline implies that the devaluation is likely to be less than what markets have been expecting, so the end result may be an even larger disappointment as the events unfold slowly. Analysts and investors received a reality check in the middle of this week, as Moodys downgraded Venezuela and PDVSA two notches to Caa1, the first credit rating company to place both at the C level. (See story below). Meanwhile, the Venezuelan Central Bank has yet to report its inflation number for November, which by law has to be done during the first 10 days of the month. President Maduro had sent a message that inflation for the month should be negative after lowering prices on appliances and clothing, which is only a small component of the Venezuelan CPI index the INPC. At this time, it is our understanding that it is actually the scarcity index which is holding up the release of the numbers, as it was much worse than the Government would like to reveal.

Weekly Report
with those Mayors that would recognize him as President and would accept the Plan de la Patria, but the Mayors made it clear that they would not do the second part. The meeting -- the first such encounter between Government and opposition in more than ten years -- went well, with both sides likely scoring points. Opposition Mayors asked that the Government not create parallel authorities where its candidates lost, as well as requesting that the Government stops taking over responsibilities, which by law correspond to the mayors. While many are doubtful that the dialogue will continue, the Government did return some of the facilities taken from a Mayor after the meeting and many are hopeful that the meeting will create an atmosphere of less confrontation.

Caracas Stocks rise 2.3%


Venezuelas stock market rose 2.3% during the week ending December 20 to close at 2,725,813, an all time high, with all stocks closing up or flat on reasonable volume. The leading gainers were state companies, as government-owned Banco de Venezuela gained 19.3% to Bs. 37 and nationalized telephone company CANTV rose 19.1% at Bs. 50. Other shares gaining ground were commercial real estate developer Fondo de Valores Inmobiliarios B, up 3.8% at Bs. 27.5; and Banco Provincial, up 2.5% at Bs. 810. The Venezuela Stock Market is now up 478.19% for the year to date in bolivar terms, though only 294.65% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world.

Moodys downgrades Venezuela to Caa1


Moody's Investors Service cut Venezuelas and PDVSAs credit ratings down two notches to Caa1 this week, the first major rating company to downgrade the country to C level. This is the first time since a brief period in 2003 after the oil strike that the country is rated so low. At the time, the countrys oil production plummeted and there was uncertainty as to the possibility of its recovery. Additionally, Moodys maintained the country on negative watch. Moodys cited the increasingly unsustainable macroeconomic imbalances, including skyrocketing inflation and a sharp depreciation of the parallel exchange rate. It even issued a strongly worded warning about the possibility of economic collapse saying: As government policies have exacerbated these problems, the risk of an economic and financial collapse has greatly increased.

Caracas Stock Exchange for the last five days

Maduro meets with opposition Mayors


President Maduro and some members of the Cabinet met at the Presidential Palace with opposition Mayors elected on December 8th. The President had originally said that he would meet

Emerging Markets solid


Despite the much-feared announcement of the beginning of tapering by the US Federal Reserve, emerging market bond prices held their own on the

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announcement that bond buying will be decreased, but in a gradual way. US Treasuries increased their yield by 5 basis points since the decision. S&P raised Mexicos rating from BBB to BBB+, citing the recent legislation allowing foreign investment in the countrys oil industry. In new issues, Argentinas YPF sold US$500 million of an 8.875% coupon 2018 bond, which quickly traded up as much as four points above the issue price, as investors gobbled up the bonds. The issue was seen as setting a benchmark for the newly nationalized YPF which will likely sell more and larger size issues in 2014.
Venezuelan Yield Curve
19,50%
17,50% 15,50%

Weekly Report
Issuer Petrobono '14 Petrobono '15 Petrobono '16 PDV '17 PDV '17N PDVSA '21 PDVSA '22 PDV '27 PDV35 PDV '37 EDC 18 VE '14 VE '16 VE '18 VE' 18 N VE' 19 VE' 20 VE' 22 VE' 23 VE' 24 VE' 25 VE' 26 VE '27 VE' 28 VE'31 VE '34 VE'38 YTM 12.97% 15.07% 14.70% 14.75% 13.79% 13.87% 13.97% 11.88% 13.72% 10.83% 17.39% 9.59% 13.92% 13.24% 13.52% 13.89% 13.08% 13.59% 13.45% 13.12% 12.73% 13.90% 12.37% 12.99% 13.81% 12.66% 11.40% Due Date 10/28/14 10/28/15 10/28/16 12/04/17 02/11/17 11/17/21 02/17/22 12/04/27 05/17/35 12/04/37 10/04/18 10/08/14 02-26-16 08/15/18 01/12/18 10/13/19 09/12/20 10/08/22 05/07/23 10/13/24 04/21/25 10/31/26 09/15/27 05/07/28 05/08/31 04/09/34 01/03/38 Price 93.60% 84.15% 78.25% 75.75% 84.50% 77.00% 94.10% 57.00% 72.75% 55.00% 73.75% 99.15% 85.00% 101.25% 77.00% 76.00% 68.25% 95.75% 76.65% 72.25% 69.90% 87.25% 79.60% 75.90% 87.75% 76.25% 64.00% Coupon 4.90% 5.00% 5.13% 5.25% 8.50% 9.00% 12.75% 5.38% 9.75% 5.50% 8.50% 8.50% 5.75% 13.63% 7.00% 7.75% 6.00% 12.75% 9.00% 8.25% 7.65% 11.75% 9.25% 9.25% 11.95% 9.38% 7.00%

PDV

EDC '18 PDV '21

PDV '35

YTM

PDV '14
13,50% 11,50% 9,50% 7,50% O-06 N-10 D-14 F-19 M-23 A-27 J-31

PDV '27

PDV '37

J-35 A-39

Table of bond offer prices at the close of this report for booth PDVSA and Venezuelan issues

YEAR

Chart: Venezuelan Yield Curve, showing the Sovereign bonds as blue dots and some corporate bonds as red dots. EDC= Electricidad de Caracas and PDV=PDVSA.

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Weekly Report

.
Caracas Stock Exchange Index Change since Dec 31, 2012 P/E Book Price Trai Value to (Bs.) Book Loc. Currency 2.725.813 478,2% Number of Shares US$ 82.600,4 180,3% Market cap. (US$)

Company

Close (Bs)

Close (US$)

Change in 2012 (%)

High (52 w.) (Bs.)

Low (52 w.) (Bs.)

EPS Trai. (Bs.)

Shares in ADR

Banco de Venezuela 37,00 1,121 Banco Provincial** 810,00 24,545 CANTV** 50,00 1,515 Cemex Venezuela I** 0,71 0,022 Cemex Venezuela II** 0,70 0,021 Cer. Carabobo 130,00 3,939 Corimn A** 718,00 21,758 Envases Venezolanos** 270,00 8,182 Fab Nac de Cementos 6,50 0,197 Fondo de Valores Inm. A 18,92 0,573 Fondo de Valores Inm. B 27,50 0,833 H.L. Boulton** 89,00 2,697 Manpa** 12,75 0,386 Mercantil Serv. Fin. A** 930,00 28,182 Mercantil Serv. Fin. B** 910,00 27,576 Sivensa**All data in US $ using 0,773 ######### a25,50 forex rate equal to

184,6% 41,00 390,9% 810,00 185,7% 50,00 0,0% 0,71 0,0% 0,70 915,6% 130,00 88,9% 923,04 157,1% 290,00 0,0% 6,50 10,0% 25,41 103,7% 0,33 0,0% 73,00 96,2% 16,00 564,3% 960,00 574,1% 980,00 45,7% Bolvars31,00 33,00 per US$

11,50 147,29 14,79 0,69 0,69 12,80 271,41 14,84 6,50 14,43 8,98 73,00 4,97 131,28 131,32 10,02

0,12 15,10 2,87 0,18 0,18 52,91 0,80 0,94 0,94 0,68 24,18 24,18 3,75

308,33 53,64 17,42 3,84 3,79 na 13,57 na 8,14 20,13 29,26 na 18,75 114,03 114,03 6,80

0,58 46,89 5,93 1,52 1,52 122,00 417,15 41,31 2,48 17,59 17,59 116,76 1,82 40,67 40,67 82,57

63,79 17,27 9,25 0,47 0,46 1,07 1,72 6,54 2,62 1,08 1,56 0,76 0,59 22,87 22,38 0,31

3.647.133.702 87.000.775 787.140.849 802.300.000 596.799.000 1.601.846 15.676.618 2.893.553 81.081.000 4.974.190 46.884.357 4.500.166 229.400.942 59.733.553 42.992.256 Total.52.521.441 Mkt. Cap.

4.089.210.514 2.135.473.568 1.192.637.650 29.920.979 6.310.302 341.085.204 23.674.525 15.970.500 41.922.166 12.136.811 88.632.182 2.868.944.159 40.584.750 10.886.503.311

10 500

150 25 4 1

* Stock prices and ratios expressed in US $ ** These companies are part of the Caracas Stock Exchange Index Stock prices adjusted by cash dividends and stock splits The closing prices used correspond to the last trade of the day as reported by Reuters, which could differ from official Caracas Stock Market closing price