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DR buys Petrocaribe debt with US $1.933 billion in sovereign bonds

SANTO DOMINGO. The Dominican government announced yesterday that it bought, with resources from the sovereign bonds, 98% of the debt of US$4.027 billion as of December 2014, from Petroleos de Venezuela, S. A. (PD VSA), for the purchase of fuels through the Petrocaribe Program.

The financial transaction was closed last Tuesday, 27 January, by means of the payment of US $1.933 billion, according to what was announced during a press conference in the Orlando Martinez Hall of the Presidential Palace, by the Minister of Hacienda, Simon Lizardo Amezquita.

The official said that the payment of the sum is equal to a discount obtained on the face value of the debt of some 52%, or its equivalent, so that they paid a price of 48% of the debt.

He explained that at the close of December 2014, the amount of the debt with PDVSA amounted to US$4.123 billion, which was the result of the disbursements received and the payments carried out during the period 2005-2014.

Lizardo Amezquita said that for the realization of the transaction of managing the debts of the Dominican government and PDVSA, they reconciled and approved an amount of US$4.027 billion, equal to 98% of the total debt. He pointed out that after carrying out this transaction of the handling of debt, as of this date the debt with the Venezuelan state enterprise is US $96.5 million.

The impact on the public debt

The Minister of Hacienda stressed that with this transaction the non-financial debt of the public sector has been reduced by US$2.094 billion, equal to 3.3% of the Gross Domestic Product (GDP). He noted that at the close of 2014, it was estimated, in a preliminary matter, that they this debt closed at US$23.8 billion (37.2% of GDP), which is equal to reduction of US$21.7 billion (34% of GDP).

The resources of the sovereign bonds

Lizardo Amezquita explained that in view of the fact that the government did not have this money on hand, the country issued sovereign bonds, last week, for a total of US$2.5 billion, of which US$1.933 billion were set aside to pay the PDVSA debt, US$563.5 million was transferred to the account of the Dominican Republic in the Central Bank as part of the financial plan approved in the General Budget of the State for 2015.

In the meantime, the remaining US$3.2 million was used to pay the cost of the emission: investment banks, lawyers, and risk assessment agencies.

For the government, according to Lizardo Amezquita, the result of the transaction is that the country has a new debt of sovereign bonds for an amount of US$1.933 billion, which were used to cancel the US$4.027 billion, equal to 98% of the debt accumulated with PDVSA, during the period 2005 – 2014.

Benefits for DR and Venezuela

According to what was reported by the official, the benefit for the Dominican Republic is that the public debt is immediately lowered by 3.3% of GDP and that the average due date of the new debt is for 19.7 years, instead of the average of 11.4 years, two indicators that will be very well received by international investors, multilateral agencies such as the IADB and the IMF and the risk assessors, among other advantages.

At the same time, he referred to the fact that PDVSA obtained a liquid fund of US$1.933 billion, which is equal to have the debt of the Dominican Republic discounted at a rate of 9.5%, very inferior to the rate at which they could raise this amount at the present time on the financial markets.

Reactions by the experts

Ernesto Selman, vice president of CREES

“I believe the fact that the government has bought the debt that the country had with Venezuela is positive because of the attractive conditions in which this came about. Now what the government has to explain is why it did this transaction and it should take advantage to initiate several reforms.”

Alejandro Fernandez, a financial analyst

“It was expected that they were going to use the sovereign bond issue for this purpose, above all because of the size of the issue of US $2.5 billion that it made recently. It seems to me that it is a favorable operation, because it reduces the debt level.”

Jacquelin Mora, economist

“I think in general terms it is a positive transaction. It is a good way of how we are handling the issue of the public debt in the Dominican Republic. In terms of the debt indicators and the impact that it can have I believe that it is positive.”

Source: DiarioLibre

January 30, 2015

Category: DR News |

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