Citgo Debt Sale Signals Venezuela Commitment, Credit Suisse Says

Citgo Petroleum Corp.’s reported plan to raise $2.5 billion to shore up the finances of parent company Petroleos de Venezuela SA signals government willingness to avoid a default, according to Credit Suisse Group AG.

The U.S. oil refining and marketing unit of PDVSA is seeking to sell $1.5 billion of bonds and obtain a $1 billion loan, according to a person with knowledge of the matter who asked not to be identified because the information is private. Venezuela’s benchmark notes due 2027 rose 0.30 cent to 35.80 cents on the dollar as of 9:51 a.m. in New York. On Tuesday, they touched a record low 35.50 cents.

“These plans would appear to support our view that the government aims to continue servicing its foreign currency denominated debt and would prefer to seek additional financing abroad in order to deal with the oil price shock rather than implement unpopular economic measures at home,” Casey Reckman, analyst at Credit Suisse, wrote in a research note to clients Wednesday. “Still, we remain concerned that these efforts could be too little, too late if oil prices do not rebound from current levels.”

The 54 percent plunge in oil prices in the past six months has exacerbated concern that Venezuela is running out of dollars needed to pay debt, pushing bond prices to levels investors haven’t seen since the 1998 Russian financial crisis spurred a selloff in emerging markets. Using Citgo to sell debt would mark a new strategy to raise cash for Venezuela after the government said in October that it had scrapped a plan to sell the Houston-based company.

President Nicolas Maduro’s annual message to congress is scheduled to take place today after being postponed twice.

Citgo’s plans are good news for bondholders, Guillermo Quiroga and Hernan Yellati, analysts at BancTrust & Co., wrote in a research note to clients.

“This is good news for the Venezuelan oil giant amid cash shortages and low oil prices, and also to bondholders with position at the short end of the yield curve,” they wrote.

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