Published On: Fri, Oct 14th, 2016

Venezuela PDVSA bond prices slip after debt swap again extended

PDVSACARACAS – Venezuelan state oil producer PDVSA’s bond prices dropped on Thursday after the company again extended a deadline for its $5.3 billion debt swap offer, suggesting investors may be hesitant to partake.

PDVSA on Wednesday night moved the date for both the early deadline and the expiration to Oct. 17, from Oct. 12 and Oct. 14, respectively.

The swap requires more than 50 percent participation to go through.

“It’s illogical that PDVSA extends again the deadline without improving the terms and will eventually have to make a decision to go ahead with less than 50 percent participation or suspend the transaction,” said Siobhan Morden with Nomura Securities International.

If low participation scuttles the swap, investors may lose their recently gained optimism that PDVSA can avoid defaulting on its heavy bond obligations. The company is struggling with low oil prices, slumping production and an extreme cash flow deficit that has left it unable to pay contractors on time.

President Nicolas Maduro has insisted Venezuela and PDVSA will make all debt payments and dismissed default talk as part of a politically motivated campaign against his socialist government.

Sources said central bank president Nelson Merentes reiterated Venezuela’s willingness to pay in a rare private meeting with two dozen investors on the sidelines of the IMF/World Bank meetings in Washington last week.

“He said plan A, B and C is to pay, even if the exchange doesn’t go through,” an investor who attended the meeting told IFR. “He didn’t seem concerned.”

But Venezuelan officials evaded more pressing questions on PDVSA’s bond swap and the availability and reliability of macroeconomic data, according to the attendees.

The company’s 2017 bond maturing in April fell 0.1 points to a bid price of 81.550 in afternoon trade, while the 2017N bond dropped 1.350 points to a bid price of 86.750. The two bonds are part of the swap operation.

“They are probably not yet at the tender threshold,” said one investor, who is planning to participate in the swap, of the extension.

The swap allows investors to exchange bonds maturing in 2017 for a new bond maturing in 2020 that is backed by shares in U.S. subsidiary Citgo Holdings Inc.

It was meant to ease significant payments including a $2 billion amortization in November and $5 billion in amortizations due in 2017.

But if participation in the swap is low, bond prices will likely fall further, according to market analysts, and PDVSA will not get as big a financial breather.

“Honestly, I don’t know whether to be scared (that participation won’t be met) or think that they’re doing this to get the maximum participation,” said another investor about the deadline extension.

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