Dominican Rep buys back the debt with Venezuela under Petrocaribe with a 52% discount

DOMINICAN REPUBLIC - In Brief 30 Jan 2015 by Pavel Isa
After months of rumors, last night the Minister of Finance of the Dominican Republic announced that the government has bought back 98.5% of the total debt with PDVSA, the Venezuelan state owned oil company. The debt was contracted under Petrocaribe, a program which provides generous financing for oil purchases to a selected number of countries in the Caribbean. The Minister of Finance said the government paid USD 1.933 bn for USD 4.027 bn in total accumulated debt since December 2014, for a discount of 52%, and that used part of the resources from the recent emission of Sovereign Bonds for 2.5bn to do the operation. As a result, total debt of the non-financial public sector will reduce to USD 21.7 bn, reaching 34.0% of GDP, a reduction of 3.3 percentage points. In our view, the operation was convenient for the Dominican Republic. The estimated discount rate was near 9.5% while interest rate for the Sovereign Bond recently issued was 6.15%. In addition, the Minister revealed that while average maturity of the debt with Venezuela was 11.4 years, the average maturity for the bonds was 19.7 years. Although the interest rate of the bonds is significantly higher (6.15% versus 1% and 2% of the debt with Venezuela), under the new structure the payments scheduled are significantly lower. Under Petrocaribe average annual payments of interest and principal were USD 205 million while under the new structure payment of interest on the bonds are around USD 120 million. The announcement came as a surprise and revealed that the emission of USD 2.5 bn in international bonds about two weeks ago was mostly aimed at financing the operation with Venezuela rather than the budget. The fact t...

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