- Company wants to exchange bonds due in 2016, 2017 for new debt
- PDVSA needs half of private bondholders to swap, Nomura says
Venezuela’s state-owned oil company has been on default watch for two years. Now it hopes it can buy itself, and the country, more time with a $7 billion debt swap.
Petroleos de Venezuela SA wants investors holding unsecured bonds due this year and next to exchange them for notes with payments staggered over the next four years that are backed by shares of the company’s U.S. unit. The government already owns a portion of the notes, but how much is not public. For the deal to have a meaningful impact, PDVSA would need at least half the remaining bondholders to agree to the swap, according to Nomura Holdings Inc.
Specific terms of the offer haven’t been announced, so it’s difficult to gauge what the reception will be. If PDVSA can pull the deal off, Venezuela may be able to avoid default for another 12 months, according to Edward Glossop, an economist at Capital Economics in London. The company’s total debt will increase and future recovery values in the event the company stops making payments will fall, but none of that will matter if oil prices recover back to levels that allow it to make payments comfortably.
“It’s a play on whether the oil price recovers enough for them to pay it,” said Phillip Blackwood, a managing partner at EM Quest Ltd., which advises Denmark’s Sydbank A/S on emerging-market debt. “If they pull it off, it’s definitely positive right now.”
The company has been working on the idea of a swap since at least November and is likely to have sounded out investor appetite already, Glossop said in a note to clients. The company’s $4.1 billion of sinkable bonds that pay principal in November 2016 and 2017 gained 3.85 cents in the past two days to 78.88 cents on the dollar as of 10:52 a.m. in New York, the highest in almost two years. PDVSA debt has returned 48 percent this year as oil prices rallied, compared to an average 13 percent for all emerging-market corporate bonds denominated in dollars.
Excluding its U.S. subsidiary Citgo Petroleum Corp., the state-owned producer already has $2.7 billion of bond payments to make in 2019 and another $4.5 billion in 2020.