May 14th, 2012

VENNY CURVE WEEKLY REPORT

HIGHLIGHTS: A new PDVSA issuance was announced last friday The risk-off mode in global markets is punishing the high yield assets, including Venezuelan bonds. We continue to recommend the short term tranche of the curve, specially Venz-2013 and Pdvsa-2014. The spread between short-term CDS Vs longterm CDS has continued to expand since late February. The BTCO index is hitting an important support level at 85 points. The BTLeading index confirms our bearish outlook on the Venezuelan curve The Venz-2027 is testing the 81 support level

Team: Andrs Caballero Trader Global Markets Jos Nascimento Capital Markets Andrs Trujillo Research Analyst

GLOBAL MARKETS +58 212 9038404 globalmarkets@banctrust.com Www.banctrust.com

FACTS
Last week, the average amount of securities negotiated through SITME was USD 43.25MM. The most traded securities were Venz-2026, Venz-2023, Pdvsa-2017(n) and Pdvsa 2021. On the other hand, at the end of last friday, it was announced a new issuance from PDVSA. The size of the issuance was USD 3,000MM with a 9.75% coupon through a private placement directly to Banco Central de Venezuela and public Banks. The fact that it was private, and not opened for investors nor corporations had a slightly positive tone on the yield curve. Historicaly, the offering of a new bond on a secundary market drags down the rest of the curve. Venezuelan corporate and single investors use the primary market as a natural mechanism to exchange local currency into hard currency. In this process they exit their short term positions to avoid market volatility. In the current scenario, a private offering means that the new bond supply will be daily distributed through SITME in amounts of USD40-45MM . However, in a risk perception enviroment, even these small sizes can not be hold by the curve. Investment Bank analysts recently suggested that the curve weakness during the last weeks was due to several reasons: The improvement in Chavezs poll numbers, the confussion regarding the new Pdvsa issue and the sell-off in the risky assets and commodities. We consider the last point as a key driver of the Venezuelan Curve. We have always stated that bond performance is highly correlated with external factors such as crude oil, US dollar and global equity markets. The recent developments in the Eurozone regarding a posible exit of Greece, has impacted the vast majority of global equity markets and in consequence, the venezuelan fixed income market.

CDS ANALYSIS
Perception on Venezuelan risk has improved, in the same way the American market did (Dow Jones, S&P500) from October 2011 until the date of this report. If we observe the behavior of Venezuelan CDS since late 2010, we can see how the institutional investors, who closely follow the Venezuelan curve, have increased their exposure in the short end of the curve (CDS 1 YR). This way, they are reducing the default chances for 2012 and 2013, due to the presidential elections this year. This CDS 1 YR behavior has caused a bigger spread between the short part of the curve and the long-term Venezuelan bonds. In November 2011, we observed this discrepancy in the spread, an pointed out the advantages of positioning on the short side of the Venezuelan curve, mainly because it offered the best risk reward given its extremely low volatility. We believe that given the current economic juncture, our best recommendation is to stay in the short end of the Venezuelan curve which offers a 7% yield to maturity. Confirming our view for the end of 2011, the spread between short-term CDS Vs long-term CDS has continued to expand since late February. This was caused by positive news due to the primaries elections for a unique opposition candidate for the Venezuelan presidential elections this year.

TECHNICALS
BTCO INDEX As we have said in previous reports, our aggregate Venezuelan bond index (BTCO Index) shows us that the yield curve is in a corrective mode after it reached March 15th highs around 90.85 points. Since then, the index has retraced just in time. At the moment, the index is hitting an important support level at 85 points. This level represents convergence of April 18th lows with the main upward trendline (green line) started at September 2011. If this support breaks, our new target price for the next 3 months will be around 79 points, given the technical reversal pattern that is developing(double top) . Additionaly, the 79 level represents a 50% Fibonacci retracement of the rally. We have seen a sudden change in the RSI indicator, showing bearish momentum. The indicator moved rapidly from overbougth level to oversold (red oval). This radical movement points to a change in the market psicology, which is a bearish signal for the Venezuelan bonds. Our outlook remains bearish in the short term. However, our view becomes invalid if the index breaks out the 91 resistance level.
CHART #1 - BTCO INDEX

Bloomberg, BancTrust & Co

BTCO INDEX VS BTLEADING INDEX The risk-off mode that we are seeing in the global markets is punishing the high yield assets, including Venezuelan bonds. Bearing this in mind, our leading technical indicator BTLead Index (red line in chart 2) confirms the corrective behavior in the yield curve. In fact, the leading index broke a key support level (Green line) of a reversal pattern and kept a downward trend from March highs. We believe the global markets correction will continue in the short term. For this reason, we suggest a cautious investment policy.

TECHNICALS
CHART #2 - BTCO and BTLEADING Index

Bloomberg, BancTrust & Co.

VENZ-2027 If we take a look at the Venezuelan benchmark bond, the Venezuelan 9.25% 2027 shows a similar behavior to the BTCO aggregate index. It is now testing the previous support at 83.15 and the price is approaching the main trendline (green line) that passes through the 81 level. If the breakout of these important support levels are confirmed, our target price is around 75 points (Double top figure projection). The 75 level was a key resistance for the october 2011 highs.
CHART #3 - Venny 9.25% 2027

Bloomberg, BancTrust & Co.

This report has been prepared by the Global Markets division of BancTrust & Co. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and BancTrust & Co. is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The information contained in this publication has been obtained from sources that BancTrust & Co. believes to be reliable, but BancTrust & Co. does not represent or warrant that it is accurate or complete. The views in this publication are those of BancTrust & Co. and are subject to change, and BancTrust & Co. has no obligation to update its opinions or the information in this publication. The analyst recommendations in this report reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of BancTrust & Co. and/or its affiliates.