By September 18, 2016 Read More →

PDVSA bond swap: Company will honor all 2017 bonds if deal declined

PDVSA bond swap

The proposed PDVSA bond swap is backed by CITGO Holdings. Reuters photo by Carlos Garcia Rawlins.

PDVSA bond swap to ease short-term payment schedule

By Alexandra Ulmer

MARGARITA ISLAND, Venezuela, Sept 18 (Reuters) – Venezuela’s state oil company PDVSA said on Sunday it would honor all 2017 bonds if a swap offer is not taken up, while reiterating that its proposal to swap up to $7.1 billion of debt was “attractive.”

Caracas-based PDVSA on Friday made an offer to swap debt maturing next year for a new 2020 bond with a coupon of 8.5 percent in an effort to ease its heavy short-term payment schedule.

“This offer has very attractive returns,” said PDVSA President Eulogio Del Pino during a summit of the Non-Aligned Movement on the Caribbean island of Margarita.

“The bond is paid in four years with four successive amortizations as of 2017. In addition, it is guaranteed by CITGO Holding Inc., giving confidence to those who decide to do the swap,” he said in a statement, adding that PDVSA was prepared to meet its obligations regardless of the swap’s success.

Markets have not yet had a chance to react to the proposal’s fine print, but appetite may be muted.

The 2020 coupon of 8.5 percent would be identical to that of the November 2017 bond, although higher than the April 2017 bond’s 5.25 percent coupon. There are also some legal worries the opposition-led National Assembly might oppose the deal because of its collateral.

“We’re going to analyze it,” said opposition lawmaker and economist Jose Guerra. “But we’re not going to accept that (use of Citgo Holding).”

After long fretting about possible default, investors in recent months have grown more optimistic the OPEC member country will meet debt payments despite an economic crisis that has spawned triple-digit inflation and chronic product shortages.

President Nicolas Maduro has noted that the ruling Socialists, in power since Hugo Chavez’s government from 1999, have never missed a bond payment and calls default rumors part of a U.S.-backed smear campaign to weaken his government.

In a prospectus on its web site, PDVSA said the 20 weekdays of the offer would expire on Oct. 14, though the company reserved the right to extend that.

Results would be given on Oct. 17, with the bonds issued on Oct. 19, according to the preliminary timetable. Offers must be over $150,000. The agent in charge of the swap is D.F. King & Co and the fiduciary Union Bank, the prospectus added.

PDVSA said its total debt up to June 30, 2016, stood at $37.3 billion.

(Reporting by Alexandra Ulmer; Editing by James Dalgleish)

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