Venezuela's PDVSA Says It Will Make April 12 Bond Payment

  • Company says it’s already started making coupon payments
  • Odds of Venezuela nonpayment in 5 years are at 93%: CDS prices

Venezuela’s state oil producer PDVSA said it will pay $2.1 billion in bonds after a plunge in crude production and dwindling cash flow spurred bets on a default.

Caracas-based Petroleos de Venezuela SA told investors that principal and interest payments related to its bond that matures this month will be available in investor accounts on April 12, the company said in an emailed statement. It added that it had already started transferring coupon payments for other bonds that mature in 2027 and 2037.

The weeks leading up to the payment had seen volatile price swings in bond prices as investors worried a deteriorating political situation could influence the country’s ability or willingness to repay its debt. The country’s dollar bonds fell the most in two years on March 31 as an ongoing dispute between the government of President Nicolas Maduro and the opposition-controlled National Assembly worsened and resulted in street protests in Caracas.

Those same bonds rallied the most in three months on Thursday after Caracas-based consultancy Ecoanalitica said in a report that PDVSA officials agreed to continue paying their debt obligations during a high-level meeting with counter-parties at the finance ministry and central bank.

Both Maduro and his economy czar Ramon Lobo said ahead of the payment that the country would continue to honor its foreign debt obligations.

“Do you think we would have been better off in default?,” Maduro told a business group in Caracas on March 23. “Let’s think of the national interest, of our land. There continue to be insipid people who attack Venezuela from the inside and outside when we all must unite in a single effort to work.”

Investors will now be waiting for government data to see if PDVSA needed to use central bank reserves to make the payment.

“Payment sources from anything other than petrodollar cashflow will confirm a negative cashflow and hence a limited strategy for scarce financing options,” Siobhan Morden, head of Latin America fixed-income strategy at Nomura, said in a report on April 4. “If officials need to monetize FX reserves then this confirms negative cashflow and less flexibility for the passive muddling through strategy.”

After making the April principal and coupon payments, the country is set to get a few months of breathing room, with the next big test set for October and November, when a total of $3.5 billion comes due. The long-term outlook continues to remain murky, with the odds of a credit event over the next five years at 93 percent, according to credit-default swaps data compiled by Bloomberg.

The opposition-controlled Congress, meanwhile, has said that the country is unable to continue paying at current levels and should re-profile payment schedules.

“We have to propose a debt refinancing plan for the country because we can not repay this debt as it currently exists,” opposition lawmaker Jose Guerra said on April 5. “We shouldn’t go into a default but rather a new payment plan.”

— With assistance by Fabiola Zerpa, Jose Enrique Arrioja, and Ben Bartenstein

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