PDVSA Bonds Gain After Swap Deadline Extended Once Again

  • New early tender deadline will be Monday; terms remain same
  • Company is seeking to extend debt maturities with bond swap

Petroleos de Venezuela SA bonds closed higher Thursday, reverting earlier losses after the company extended the deadline on its planned $5.3 billion debt swap for a second time without offering investors any extra incentive to take part. 

PDVSA’s bonds due in April 2017 gained 0.03 cent to 81.87 cents on the dollar at the end of trading in New York after earlier falling as much as 1.44 cent. The bonds due November 2017 rose 0.43 cent to 86.6 cents per dollar. The company announced the swap a month ago, then sweetened the terms in late September to persuade investors to sign up for the deal as demand for the offer fell short.

The new deadline will be on Oct. 17, the company said in a statement on its website Wednesday. The state-owned oil company, which despite having bigger reserves than Saudi Arabia is running out of money to pay its debts, is trying to persuade holders of at least 50 percent of its bonds due next year to swap them for new notes that pay out between now and 2020. Investors submitted “substantially less” than PDVSA hoped for, the company said.

PDVSA is "saying to the markets that they are willing to let the deal fall through unless there is more participation," said Francisco Rodriguez, chief economist at Torino Capital in New York. "This is a bargaining strategy to try to get holdouts to buy in."

Venezuela’s Rally

PDVSA’s bonds have returned 15 percent since Sept. 13, when it first announced the proposed swap. Venezuelan bonds are the best-performing in emerging markets this year, with a return of 63 percent, as the country has defied expectations that it would default on its debt.

Years of declining output and the drop in oil prices pushed the company, as well as the government, to the brink of default. While some ratings companies have said they would treat the transaction as a default, investors had been betting that it will allow both the company and the country to keep making payments on the best-performing debt in emerging markets this year.

The company wants to reduce debt due in the next 18 months by swapping the bonds for new 8.5 percent securities payable in annual installments until 2020. The exchange’s upper limit is three quarters of the outstanding notes.

After initially offering investors $1,000 of the new securities for every $1,000 of the old bonds offered, PDVSA on Sept. 26 sweetened the deal by pledging $1,170 bonds for every $1,000 of the April 2017 securities tendered before the early deadline and $1,220 for the November 2017 bonds. After the early deadline, investors can get $50 less per $1,000.

“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,” Siobhan Morden, head of Latin American fixed-income strategy at Nomura Holdings Inc., wrote in a note to clients on Thursday. “The company either has to accept a lower participation rate and more generous distribution of collateral or forfeit the cash-flow savings from the exchange.”

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