INSIGHT-Venezuela uses distressed bonds to settle debts with drugmakers
By Brian Ellsworth, Ben Hirschler and Tim McLaughlin
CARACAS/LONDON/BOSTON, March 7 (Reuters) - Venezuela has settled debts with at least three global drug companies by giving them bonds that trade at a heavy discount, a further sign of the OPEC nation's worsening financial crisis.
Novartis AG, Bayer AG and Sanofi SA acquired dollar-denominated bonds from state-owned oil company PDVSA that they resold for as little as a third of their face value, according to a Reuters analysis of regulatory filings and sources with knowledge of the situation. This contributed to some $500 million in foreign exchange losses that the three companies suffered in Venezuela in 2015, The extent of the bond transactions has not been previously reported.
For a graphic showing how the bond deals can be a bitter pill for drugs companies, see tmsnrt.rs/1L3jONR
The payment method provided a shortcut around the country's troubled 13-year-old currency control mechanism. The system is widely regarded as a primary cause of runaway inflation, a deep recession and chronic product shortages that have afflicted Venezuela's economy under socialist President Nicolas Maduro.
Companies are required to sell products in bolivars but then struggle to convert them into hard currency through the government's currency board.
Venezuela tries to use an official exchange rate of 10 bolivars to the dollar for priority goods such as food and medicine. The rate is the result of a devaluation last month from the previous rate of 6.3 bolivars.
However, Venezuela, which gets nearly all of its foreign exchange from oil exports, has had fewer dollars to disburse as a result of the crash in oil prices in the past two years. That has left it without enough dollars to pay down debts to pharmaceuticals companies at the preferential exchange rate.
Few of the alternatives are palatable. They include holding a rapidly deteriorating currency or using a much weaker official exchange rate of 206 bolivars to the dollar. The black market rate is close to an extraordinary 1,100 bolivars to the U.S. dollar, valuing the Venezuelan currency at less than 1 percent of the official rate. Continuación...