PDVSA’s Improved Swap Boosts Bonds as Default Seen Deferred

  • Company plans to offer as much as 1.22 times face value
  • PDVSA had previously offered no price premium for swap

Venezuelan bonds surged after the state-owned oil company sweetened the terms of its bond exchange offer and pushed back the deadline for investors into next week.

Petroleos de Venezuela SA said it will pay holders as much as 1.22 times the face value of their 2017 notes in exchange for longer-maturity securities, after offering no price premium in a proposal Sept. 16. While the original swap offer was for $7.1 billion of bonds, PDVSA said Monday it would swap no more than $5.325 billion of securities. The new bonds maturing in 2020 will continue to be backed by a 50.1 percent stake in Citgo Holding Inc.

PDVSA is seeking to postpone debt payments after the collapse in oil prices and a decline in crude output hampered its ability to pay. Bonds rose after the new offer increased the probability that it will succeed in enticing investors to tender their securities, helping reduce the $8.2 billion debt of payments it is due to make between now and the end of June.

“Without the swap it would be a default,” said Regis Chatellier, an emerging-market credit strategist at Societe Generale SA in London. “The price outlook suggests the market thinks the swap is more likely to happen. If the swap does happen the price could go even higher because that would mean the default risk is put back substantially.”

The company’s $3 billion bonds due in April 2017 rose 4.09 cents to 79.87 cents on the dollar. Its $4.1 billion bonds due in November 2017 rose 2.78 cents to 81.77 cents. PDVSA bonds have returned 53 percent this year and 6 percent this month.

The new early tender deadline is Oct. 6.

The previous offer was failing to attract institutional investors, which probably hold between 30 percent and 35 percent of the bonds, according to Asdrubal Oliveros, a director at the Caracas-based consulting firm Ecoanalitica. Those investors are key to reach the participation level that PDVSA needs to push back 2017 maturities, he said.

“On one hand, it’s positive that more holders are going to take up the offer, but the cost of that is that the company’s debt will increase by about $1.1 billion,” he said. “The problem is that it doesn’t make sense to raise the debt without structural reforms to back it up.”

Venezuelan sovereign bonds due in 2022 rose 0.65 cent to 60.50 cents per dollar. Venezuelan sovereign debt is the best-performing in emerging markets this year, with 43 percent returns.

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