PDVSA Offers Citgo Backing to Sweeten $7 Billion Bond SwapBy and
Company wants to exchange bonds due in 2017 for 2020 debt
PDVSA to offer new bonds at 1:1 ratio to old until Sept. 29
Venezuela’s state-owned oil company says it won’t pay bond investors any more than face value to exchange their debt for longer-maturity notes. Instead, it proposes offering half its U.S. refining arm as collateral.
Petroleos de Venezuela SA will offer to swap $7 billion of bonds maturing in April and November next year for new 8.5 percent notes with payments staggered over the next four years. The new bonds will be backed by a 50.1 percent stake in Citgo Holding Inc., the unit that owns its U.S. refining arm.
PDVSA is seeking to postpone debt payments after the collapse in oil prices and a decline in crude output hampered its ability to pay. Half of the $4.1 billion of bonds that mature November 2017 will be paid back this year. Venezuela has been on default watch for the past two years, yet has always managed to scrape together enough money to service its debts, even as foreign-currency reserves fell and its hard-currency drought led to shortages and protests.
The company will offer $1,000 of new bonds for every $1,000 of old debt tendered until Sept. 29, when the offer will fall to $950 per $1,000, it said on its website. The offer released late Friday didn’t include a $1 billion note coming due next month. It was mentioned when officials said Tuesday that they were planning a swap.
D.F. King & Co. was named as the exchange agent for the deal.
Citigroup Inc. on Wednesday said that the value of Citgo collateral may be “low” as prior creditors may seek to challenge it in court.
“It is questionable if the bond exchange will be a solution for PDVSA/Venezuela debt sustainability,” Citigroup strategist Donato Guartino wrote in the Sept. 14 note to clients. “We think this exchange is simply a vehicle to swap the bonds in the hands of the public sector since private investors will have limited incentive to participate.”
The government owns a portion of the notes, but how much isn’t 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.